The liability of directors for mismanagement (mala gestio) and the criteria for liquidating damages

With order no. 8069 of March 25, 2024, the Supreme Court reiterated the principle that, in the event of a liability action brought against the directors of a company, the directors shall prove that the acts they carried out after the occurrence of a cause for the dissolution of the company were solely for the purpose of preserving the company’s assets, pursuant to Article 2486 of the Italian Civil Code, and that such acts, justified by a liquidation purpose, did not entail a new business risk for the company.

The case 

The dispute originates from a liability action against the directors of a limited liability company, brought by the company’s bankruptcy proceedings before the Court of Perugia. The judge of first instance convicted the executive administrators of the limited liability company, while rejecting the counterclaim brought by the defendants against the non-executive directors of the same company. 

Subsequently, the Court of Perugia, appealed to by the executive directors convicted in the first instanc, partially reversed the judgment, redetermining the amount of damages and affirming the joint and several liability of all directors, including the non-executive directors, having found overall conduct of mismanagement consisting, among other things, in the failure of assessing the reduction of the corporate capital below the legal minimum, pursuant to Article 2482-ter of the Italian Civil Code, and the consequent failure to convene the company’s quotaholders’ meeting to deliberate alternatively (i) the reduction of the corporate capital and the simultaneous increase of the same to an amount not less the legal minimum or (ii) the dissolution of the company, pursuant to Article 2484, paragraph 1, n. 4, of the Italian Civil Code. Furthermore, following the occurrence of the described cause for dissolution of the company, the directors had not complied with the provisions of Article 2486 of the Italian Civil Code, performing management acts that were not solely for the purpose of preserving the company’s assets. 

One of the company’s executive directors appealed against this second instance ruling to the Supreme Court, complaining, among other reasons, of a violation of Article 2476 of the Italian Civil Code, on the grounds that the Court of Appeal had not liquidated the damaged with regard to specific acts of non-compliant management, but rather on the basis of the so-called net assets criteria (netti patrimoniali). 

The decision 

Confirming the approach followed by both courts of merit, the Supreme Court ruled, among other issues raised, on the failure to adopt the conservative acts set forth under Article 2482-ter of the Italian Civil Code, regarding the burden of proof on the administrators in the event of liability proceedings and on the liquidation of the relative damage. 

In particular, the Supreme Court reiterated the principle that a party bringing an action for liability against the directors for having carried out management activities exceeding the limits of the mere preservation of the company’s assets, after the occurrence of a cause for dissolution, is responsible for the alleging and proving the facts constituting the claim, i.e. the occurrence of the cause for dissolution and the subsequent performance of these management acts. On the other hand, the plaintiff is not required to prove that such acts constitute the prosecution of the ordinary business activities or that they are not for liquidation purposes. The burden of proving that the transactions carried out after the cause of dissolution did not involve the assumption of new business risk - likely to aggravate the financial difficulties and prejudice the interests of the creditors and quotaholders - falls on the defendant directors.

With regard to the liquidation of damages arising from the directors’ liability for mismanagement (mala gestio), the so-called net asset criteria (criterio dei netti patrimoniali) is relevant, which is provided for by the legislator under third paragraph of Article 2486 of the Italian Civil Code, thus codifying the mechanism for the equitable settlement of damages. 

The Court of Cassation therefore rejected the appeal, confirming the reasons advancedto be unfounded.