The share capital increase eliminates 'ex tunc' the dissolution cause of the company

The Italian Supreme Court, with Ordinance No. 17139 of May 15, 2023, excluded the liability of the directors of a company, whose share capital momentarily fell below the legal minimum due to losses, who failed to ascertain the cause for dissolution of the corporate contract, if an increase in share capital suitable for restoring it took place. This reintegration, in fact, eliminates ex tunc the cause for dissolution referred to in paragraph 1, no. 4, Article 2484 of the Italian Civil Code.

The facts of the case

The case originates from a corporate liability action filed by a company in liquidation against its former directors for damages caused by them by means of management acts performed - in violation of the prohibition on new transactions pursuant to Article 2486 of the Italian Civil Code - between the time when the share capital had fallen below the legal minimum and the termination of their office.

The Italian Court of Appeal condemned the directors and auditors of the company, partially restating the first instance Court's decision, to jointly and severally compensate the company. It also quantified the damages by evaluating all new transactions carried out by them since the capital reduction below the legal minimum amount. By condemning the directors and auditors, the Italian Court of Appeal did not consider that, after the company's share capital fell below the legal minimum, the directors convened a shareholders’ meeting pursuant to Article 2447 of the Italian Civil Code in order to restore and increase it above the legal minimum. The losing parties then appealed this decision to the Italian Supreme Court, arguing that the Italian Court of Appeal did not take into account the share capital increase that was taken in place in the meantime, which was suitable for eliminating the first cause of dissolution related to the reduction of share capital below the legal limit.

The decision

The Italian Supreme Court ruled that the directors were not liable because, upon the occurrence of the reduction of share capital below the legal limit, they correctly convened a shareholders’ meeting to reinstate it pursuant to Article 2447 of the Italian Civil Code. In this context, the reinstatement of share capital operates as a resolutive condition and it has the effect of eliminating ex tunc the cause of dissolution due to reduction of share capital below the legal limit referred to in Paragraph 1, No. 4, Article 2484 Italian Civil Code.  Consequently, the directors' conduct - consisting of their failure to ascertain the cause for dissolution and their management of the company for purposes other than the mere preservation of the value of its assets - can only be considered in violation of the obligations under Articles 2485 and 2486 of the Civil Code when the share capital has definitively been reduced below the legal minimum, i.e. in the absence of action by the shareholders' meeting. Moreover, the additional condition that the losses causing the reduction are more than one-third of the share capital is necessary.