Validity of resolutions in which a quota holder and director of a limited liability company votes on his own remuneration

With order no. 10889 of 23 April 2024, the Italian Supreme Court (Corte di Cassazione), in line with its previous jurisprudence, ruled that the resolution of the quotaholders’ meeting of a limited liability company determining the director’s remuneration cannot be considered invalid for the sole reason that it was adopted with the decisive vote of the director himself, who participated in the quotaholders’ meeting as a quota holder if the company’s interest is not also prejudiced. This is because the mere fact that such a resolution enables the quota holder-director to (also) realize one of his interests does not in itself entail an impairment of the company’s interests.

The case

The case stems from an action for annulment brought by the minority quota holder of a limited liability company against the decision of the quotaholders’ meeting of that company to set aside the resolution fixing the remuneration of the members of the board of directors, on the ground that it was adopted in a situation of conflict of interest within the meaning of Article 2479-ter of the Italian Civil Code.

According to the plaintiff, the majority quota holder, Alfa s.n.c., first rejected with its decisive vote the minority quota holder’s proposal to substantially reduce the directors’ remuneration, even though the company had incurred losses that had reduced its capital by more than one third, and then, in pursuit of an extra-company interest, decided to grant disproportionate remuneration to the company’s directors, who were, among other things, unlimited partners of Alfa s.n.c. itself.

In both the first and second instances, the appeal against the resolution was dismissed due to Article 2479-ter on the grounds that the majority quota holder had not intended to pursue an extra-corporate and personal interest contrary to that of the company, since, among other things, there was no disproportionate or unreasonable remuneration paid to the directors themselves. On the contrary, as the Italian Court of Appeal pointed out, the contested resolution approving the directors’ remuneration provided for a reduction in the directors’ remuneration precisely because of the company’s economic difficulties.

The minority quota holder appealed against the judgment of the second instance before the Italian Supreme Court.

The judgment

The Italian Supreme Court dismissed the minority quota holder’s appeal on the grounds that Article 2479-ter, second paragraph, of the Italian Civil Code provides that resolutions of a limited liability company are invalid and may be challenged as such if they are adopted with the decisive participation of quota holders who, in their name or the name of third parties, have an interest in conflict with that of the company and are likely to cause damage to the company. It is therefore necessary to establish the existence of a situation of conflict of interest between the quota holder and the company, the decisiveness of the vote cast, and the potential harmfulness of the resolution for the company.

A situation of conflict of interest between a quota holder and the company implies that the former is in a situation where, concerning a particular resolution, he has a dual and conflicting interest: on the one hand, his interest and, on the other, that of the company.

This duality of interests must be such that the quota holder cannot satisfy one without sacrificing the other. Therefore, the fact that a resolution enables the quota holder to (also) realize his interest does not in itself entail an impairment of the company’s interest. Therefore, in its decision no. 28748 of 3 December 2008, the Italian Supreme Court held that a resolution determining the director’s remuneration cannot be considered invalid merely because it was adopted with the decisive vote of the director himself, who attended the quotaholders’ meeting if the company’s interests are not prejudiced.

Accordingly, in the present case, “the mere fact that the private quota holder, though being the director of the company, voted on the resolution determining the director’s remuneration is not capable of giving rise to a situation of conflict of interest, which is relevant to the present case, since the Local Court did not find - nor did the appellant claim to have found - the existence of significant elements of incompatibility between the company’s interest and the personal interest pursued”.