The statutory auditor’s duty of vigilance extends to all corporate governance

The Italian Supreme Court, in its decision no. 2350 of 24 January 2024, ruled on the liability of the members of the board of statutory auditors. In particular, the Court confirmed that the duty of supervision imposed on statutory auditors by Article 2403 of the Italian civil code extends to the proper conduct of the entire management of the company.

The aim is to protect the interests of the shareholders as well as the competing interests of the company’s creditors. Moreover, this duty is not limited to the mere and formal control of the documents submitted by the directors.

The case
The case stems from an order of the judge in charge of the bankruptcy of a limited liability company. The judge rejected the application made by the former statutory auditor of the company in relation to his claim for being admitted, as a creditor, in the bankruptcy register, with respect to the activities he performed.

The auditor then appealed against the decision. The Court of Como, which had territorial jurisdiction, upheld the appeal and ordered that the auditor be admitted to the bankruptcy register as a creditor of the company accordingly. In particular, the court held that the bankruptcy administrator’s plea of non-performance, based on the statutory auditor’s failure to supervise certain management activities carried out by the company’s bodies, was unfounded. The bankruptcy administrator appealed the decision behind the Supreme Court.

The judgment
The Supreme Court reversed the decision of the Court of Como and reaffirmed that the supervisory duty imposed on the statutory auditors by article 2403 of the Italian civil code goes beyond a mere formal examination of the documents submitted to them by the board directors. The members of the board of statutory auditors have the power and the duty to request information both on the general performance of the company and on specific transactions which, by their nature or the way in which they have been chosen or carried out, may give rise to concern.

In this respect, the Supreme Court stated that the duty of supervision imposed on auditors by article 2403 is particularly broad. Since it is intended to protect both the interests of the shareholders and the concurrent interests of the company’s creditors, this duty extends to the proper conduct of the entire management of the company.

Auditors are not automatically held responsible for any action taken by the management that is not aligned with the law, articles of association, or principles of good administration. However, it is important for auditors to make use of all the investigative and obstructive powers conferred on them by law. 

Finally, the Supreme Court made it clear that keeping the auditor in the dark about the actions of the directors is not enough to exclude a breach of duty. Rather, the statutory auditor’s duty of supervision requires that he first obtains adequate information. Additionally, it is not necessarily significant that he assumed office after the damaging facts had occurred. If, from the time of his appointment, the statutory auditor remained inactive without investigating and remedying the situation, he may be held accountable.

According to the Supreme Court, in the present case the Court of Como had wrongly dismissed the alleged auditor’s breach without assessing whether and to what extent he had supervised the company’s operations. As a result, the Supreme Court upheld the appeal, annulled the decision of the Court of Como and remanded the case to the same Court for a review of the decision.