Resignation for cause of the director of a joint-stock company and right to indemnification

The Court of Milan, Specialized section in business matters, with a judgment dated October 9, 2022, reaffirmed that in case of resignation submitted by a director of a joint stock company, the cause (giusta causa), which only entitles the director to indemnification, if agreed between the resigned director and the company, cannot be represented by a difference of opinion on management decisions, as it is configured when the resigning director is unable to perform his duties for reasons beyond his control.

The case

The case originates from an action submitted by the resigning director of a joint-stock company against the company itself. The director’s legal action sought, among others, the payment of the compensation due up to the date of resignation by virtue of his office and the condemnation of the company to pay the indemnification due to the director by virtue of a previous agreement between the company and the resigned director. Such agreement provided for the payment of a fixed sum in favour of the director in the event of resignation for cause (giusta causa), as well as further indemnification for any damages resulting from the termination of his office for reasons attributable to the company.

The plaintiff presented to the Court of Milan the reasons that led him to resign from his office, consisting of (i) the inadequate management of the company by the directors appointed by the majority shareholder, (ii) the lack of necessary information for the appropriate performance of his mandate, (iii) the communication to him of incorrect financial information, and (iv) his exclusion from management decisions.

The defendant company challenged the existence of cause (giusta causa) for the resignation as submitted by the director.

The decision

The Court of Milan rejected the plaintiff’s claim for indemnification.

The Court firstly examined the mechanism of the revocation of the director of a joint-stock company, explaining that Article 2383 of the Italian Civil Code provides for the revocability at any time (ad nutum) of the director by the shareholders’ meeting of a joint-stock company, subject to the right of indemnification of the director by the company for the damages suffered by the revoked director, if the revocation is not supported by cause (giusta causa). However, no such provision exists in the Italian Civil Code, in the event of the director’s resignation for cause (giusta causa), as it is within the parties’ choice to negotiate and autonomously regulate such consequences.

In the present case, the resigned director and the company had agreed upon indemnification for the resignation of the director for cause (giusta causa); the Court of Milan, then, proceeded to examine the existence of such cause (giusta causa), considering that it cannot be constituted either by a disagreement on management decisions or by the arising of conflicts within the board of directors. Conversely, the cause (giusta causa) can be constituted when the resigning director is unable to perform his duties due to circumstances not attributable to him, i.e. a persistent lack of necessary information, systematic communication of incorrect information, or exclusion from participation in the decision-making processes and decisions of the management body. However, these circumstances were not proven by the resigning director, and the Court of Milan, therefore, rejected the claim for indemnification.

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