The validity of Russian roulette and Texas shoot-out clauses in shareholders’ agreements

The Italian Supreme Court, with the decision no. 22375 of 25 July 2023, ruled for the first time on the issue of the validity and effectiveness, pursuant to the Italian law, of the so-called "anti-deadlock clauses" contained in a shareholders' agreement. 

Anti-deadlock clauses aim to overcome situations of managerial paralysis ("deadlock") that risk to compromise the economic activity of the company and may lead to its liquidation, due to the impossibility of achieving its purpose. For instance, anti-deadlock clauses are effective in cases in which the equity is divided between two partners with equal shares amount or in joint ventures incorporated to pursue a single business deal. 

Such clauses originated in common law systems and have entered the customs of international business, eventually being absorbed also by the Italian legal system in the form of atypical clauses. The most widespread anti-deadlock clause is the so-called "Russian roulette clause". This clause provides that, upon occurrence of a deadlock situation that cannot be resolved otherwise, one or both shareholders will be given the power to make a binding purchase offer to the other shareholder for his or her shareholding, containing the price they are willing to pay for its purchase.

The shareholder to whom the offer is addressed may alternatively either (i) accept the offer and sell his own shareholding at the price indicated by the other party or (ii) "reverse" the initiative completely and make himself the purchaser of the other shareholding, for the same price the latter had indicated. When the possibility of triggering the clause is assigned to only one shareholder, it is called an asymmetrical clause. In case such a power belongs to both shareholders, the clause is called symmetrical. The Russian roulette clause has also been referred to in the literature as the "Texas shoot-out clause", where it allows partners to bid after submitting an initial offer.

The case-law and the notarial doctrine have long been divided as to whether the Italian principle of fair evaluation of the shareholding, which is applicable in case of exit, applies also to the Russian roulette clause. Namely, on the one hand, the Milan Notary Council stated that "The legitimacy of the clause (…) is to be understood as subordinate (…) to its compatibility with the principle of fair evaluation of the mandatorily dismissed share", while it does not require the explicit reference to the legal criterion for determining the value of the shareholdings established for the case of exit, pursuant to art. 2437-ter, paragraph 2 of the Italian Civil Code or art. 2473, paragraph 3 of the Italian Civil Code.

On the other hand, openly countering the Milan Notary Council, the Court of Appeal of Rome  held that "no principle of fair evaluation of the share is applicable to the case of Russian roulette, so that, for the purposes of demonstrating the abusive exercise of the clause, (...) the abused shareholder will have the burden of proving that the purchase took place at a clearly unfair price."

With the ruling at hand, the Italian Supreme Court intervened on the issue in order to settle these differences in the interpretation, specifying that the principle of fair evaluation of the shareholding is indeed applicable in the case of shareholder withdrawal (Art. 2437-ter of the Italian Civil Code) and share redemption (2437-sexies of the Italian Civil Code), but it cannot be applied in the context of a Russian roulette clause. The reasoning behind such ruling is that "we do not face a situation of pure submission to another's potestative right” – which would give place to an expropriative effect of the value – “but before a faculty of choice of the offeree, which is incompatible with that effect."