SPA Administrative PDF

4.administrative body Structure: → sole director → board of directors For listed companies it's compulsory to have a management board composed of several members Directors' duties In broad terms, the directors are exclusively responsible for the management of the company, and they must carry out al...

4.administrative body Structure: → sole director → board of directors For listed companies it's compulsory to have a management board composed of several members Directors' duties In broad terms, the directors are exclusively responsible for the management of the company, and they must carry out all the operations necessary in order to achieve the company's objective. Also, directors are competent to approve all the resolutions that do not fall under the responsibility of the shareholders' meeting. Then, the law specifies many powers and duties of a precise nature of directors: -they have the general power to represent the company; -they have the power to call the shareholders' meeting, drawn up the relative agenda and they have the duty to implement the shareholders' meeting resolutions; -they are responsible for the company's bookkeeping and accounting records; -they have the duty to adopt an adequate organizational, administrative and accounting company's structure -they have the duty to adopt organisation and management models suitable for preventing crimes -they have the duty to prevent any actions that could undermine the company's interest All of these responsibilities are mandatory, and therefore cannot be taken away or avoided, neither by the bylaws nor by the shareholders' meeting. Of these duties the directors are liable civilly and, in some cases, also criminally. Relationship between shareholders' meeting and directors: -the management competence of the shareholders' meeting is limited, the management, competence of the directors are general -once appointed, have broad decision-making powers, powers that do not derive from appointment by the shareholders' meeting and that they can exercise independently -they are the only ones responsible for these powers/duties, not the shareholders -authorizations given by the shareholders' meeting to carry out certain operations → first directors, appointed in the instrument of incorporation → then, other directors are appointed by ordinary shareholders' meeting → the bylaws may provide special rules for the appointment → in listed companies, directors are appointed through the list voting mechanism → holders of participating equity instruments may be appointed by independent director → one or more directors may be appointed by the State or public authorities in the event that these entities hold shares in the company Number of directors is established by the bylaws (also stating the minimum and the maximum number) Causes of ineligibility (2382 с.с.): → legal incapacity → persons declared bankrupt → persons sentenced to a punishment involving the disqualification from public office or the inability to hold office In these cases, the person cannot be appointed as director Duration of the office: → three financial years, they cease at the date of the shareholders' meeting called to approve the financial statements of the last year of the term of their office → they may be reappointed, unless the instrument of incorporation provides otherwise Other reasons for termination of office: → shareholders' meeting resolution to remove a director → resignation from office → death → the arising of a cause of ineligibility In the event that the director terminates his or her office before the natural term, the law states that the termination of the office will take effect when the director will be replaced and the new director has accepted the appointment. In the case of resignation, if the majority of the other directors remain in office, resignation will take effect immediately. In certain cases, the cause for termination of office is not or cannot be delayed, so the law establishes replacement mechanism Remuneration (art. 2389 c.c.) → Is established by the bylaws or otherwise by the shareholders' meeting → Additional remuneration if directors have specific duties provided by the bylaws Prohibitions for directors: -they can't become shareholders/partners with unlimited liability in competitor companies -they can't carry out a competing activity -they can't be directors or general managers in competitor companies For listed companies there is the prohibition of using insider information. Effects of the violation lead to the remotion of the director, as well as being liable to pay for any damage caused. How the board of directors work The sole director holds meeting on his or her own and performs all the duties and the powers of the administrative body If we instead have multiple directors, thus the board of directors shall be led by an appointed chair.Resolutions are passed jointly, during specific meetings with a majority vote. Any resolution that have not been passed in compliance with the law or with the articles of the association may be contested Bodies with delegated functions (art. 2381 с.с.) -bylaws clause or shareholders' meeting resolution -Executive committee, which is a collective body -Managing director a one-person body; could be one or more, if there are more managing directors Directors' interests (2391 c.c.) A director has an interest in a given operation, on his/her own behalf or on behalf of third parties, not necessary in conflict with the company's interest, must: -inform other directors and the board of statutory auditors -in both case, suitably motivate the reasons why the transaction benefits the company -in the case of sole director, he/she must inform the board of statutory auditors and also the shareholders' meeting as soon as possible The resolution taken in these cases, which can harm the company, could be contested: -both if the director in conflict of interest voted and his vote was determined to approve the resolution, -and if the obligations in terms of transparency, abstention and justification were not fulfilled. Contracts concluded by the sole director with a conflict of interest are voidable at the request of the company under the general rules of representation. Legitimation to contest the resolution and time limit: 90 days from the date of the resolution, by the board of statutory auditors. Company may act against the director to claim compensation for the damages arising from his/her actions or omission. Powers of representation (art. 2384 c.c.) The power of representation concerns the external activity of the company: it is the power to act towards third parties in the name of the company. It is different from the power to manage the company, which concerns the internal activity, that is, the decision-making phase of the company's operations. -If there is a board of directors the bylaws or the appointment resolution must name the directors with the powers of representation. -If there are several directors with the powers of representation, it is necessary to establish if they act separately or jointly. Directive (EU) 2017/1132 Article 9 Acts of the organs of a company and its representation 1. Acts done by the organs of the company shall be binding upon it even if those acts are not within the objects of the company, unless such acts exceed the powers that the law confers or allows to be conferred on those organs. 2. The limits on the powers of the organs of the company, arising under the statutes or from a decision of the competent organs, may not be relied on as against third parties, even if they have been disclosed. 3. If national law provides that authority to represent a company may be conferred by the statutes on a single person or on several persons acting jointly, that law may provide that such a provision in the statutes may be relied on as against third parties on condition that it relates to the general power of representation. The power of representation of the directors is general, meaning it is not limited to matters within the corporate purpose. directors have the power to represent the company as part of legal proceedings. Limitations on the power of representation → Maximum protection of third parties' reliance → Lack of power of representation due to an invalidity of the appointment resolution is not enforceable against third parties, except upon the proof that the third parties had knowledge of it → Limitations on the power of representation provided with the bylaws or the resolution of appointment are not enforceable against third parties, except upon the proof that the third parties acted intentionally to the detriment of the company → Legal limits on the power of representation can be always enforced against third parties Directors' liability: 1.liability towards the company 2. liability towards the company's creditors 3.liability towards individual shareholders and third parties 1. Liability towards the company (Art. 2392, 2393, 2393-bis c.c.) Directors can be held liable for damages caused to the company if they don't fulfill the obligations imposed to them by the law or by the bylaws, with professional diligence Limitation: directors are not liable for negative economic performance resulting from the company's activities, the so-called business judgment rule applies Liability action against the directors must be approved by: → the ordinary shareholders' meeting → the board of statutory audits, passed with the majority vote of two thirds of its members → the insolvency practitioner, only in case of insolvency a company may renounce the liability action or reach a settlement agreement with the directors in question through a shareholders meeting resolution. In order for such resolution to be valid a qualified minority must not vote against it 2. Liability action taken by the company's creditors (art. 2394 с.с.) Directors can be held liable to the company's creditors if they fail to fulfill their obligations to keep the company's assets intact. So, creditors can take a liability action only if the company's assets are insufficient to pay them. There is a prescription, so a time limit of 5 years from the day on which the insufficiency of the company's assets becomes apparent. 3. Liability action taken by individual shareholders and third parties Directors may be held liable to individual shareholders and third parties for damages caused to them directly as a result of intentional or negligent actions. Two requisites must be met in order for individual shareholders or third parties to claim compensation for damages from directors: 1) the directors must have acted unlawfully while performing his duties; 2) there must be direct damage to the individual shareholder's or third party's assets. This last liability is very different from the first and the second, because it is not a contractual liability. In this case, the burden of proof is much heavier and more difficult. Companies limited by shares Italian and European Company Law – A.A. 2024/2025 Dott.ssa Giulia Serafin Administrative body (traditional system) Structure → sole director → board of directors (this board may be structured by attributing specific duties to certain members: executive committee and managing directors) → listed companies: it’s mandatory to have a management board composed by several memebers (to ensure the presence of at least one member chosen from the minority list and at least one independent director, art. 147-ter, t.u.f.) Directors’ duties In broad terms, directors are exclusively responsible for the management of the company, and they must carry out all the operations necessary in order to achieve the company’s object. Also, directors are competent to approve all the resolutions that do not fall under the responsibility of the shareholders’ meeting. Then, the law specifies many powers and duties of a precise nature of directors: they have the general power to represent the company; they have the power to call the shareholders’ meeting, drawn up the relative agenda and they have the duty to implement the shareholders’ meeting resolutions; they are responsible for the company’s bookkeeping and accounting records; they have the duty to adopt an adequate organizational, administrative and accounting company’s structure, also to prevent a situation of insolvency or to detect it timely; they have the duty to adopt organization and management models suitable for preventing crimes from which administrative liability of the company may follow (Italian Legislative Decree No. 231/2001); they have the duty to prevent any actions that could undermine the company’s interest and to adopt any actions to avoid the relative consequences. All of these responsibilities are mandatory, and therefore cannot be removed or avoided, neither by the bylaws nor by the shareholders' meeting. They are an expression of the principle of separation of powers among different bodies of the companies limited by shares and serve as a counterbalance to the non-liability of shareholders. Of these duties the directors are liable civilly and, in some cases, also criminally. Relationship between shareholders' meeting and directors → art. 2364, n.5 and art. 2380-bis, par. 1, c.c. → the “management” competence of the shareholders' meeting is limited, the management competence of the directors are general → once appointed, have broad decision-making powers, powers that do not derive from appointment by the shareholders' meeting (but by the law) and that they can exercise independently → they are the only ones responsible for these powers/duties, not the shareholders → authorizations given by the shareholders' meeting to carry out certain operations Appointment of directors → first directors: instrument of incorporation → then, ordinary shareholders’ meeting → the bylaws may provide special rules for the appointment → in listed companies, directors are appointed through the slate voting mechanism → holders of participating equity instruments (indipendent director) → State or public entities (in the event that these entities hold shares in the company) → Number of directors is enstablished by the bylaws (also stating the minimum and the maximum number) → Requirements: directors can be shareholders or not. The Civil Code does not provide for specific requirements, but the bylaws could provide that directors must meet the requirements of good standing, professionalism, and independence. For some kind of companies, special laws require them. A. Causes of inelegibility (2382 c.c.) → legal incapacity → persons declared bankrupt → persons sentenced to a punishment involving the disqualification from public office or the inability to hold management office. In those cases, the person cannot be appointed as director and if the cause arises after the appointment the director falls from office. B. Causes of incompatibility provided for by special laws In the case of appointment, the director must choose… Duration of the office → three financial years (they cease at the date of the shareholders’ meeting called to approve the financial statements of the last year of the term of their office) → they may be reappointed (unless the instrument of incorporation provides otherwise) Other reasons for termination of office → shareholders’ meeting resolution to remove a director (the ordinary shareholders' meeting may at any time remove directors, but if there is no just cause the director is entitled to compensation for damages) → resignation from office → the arising of a cause of ineligibility → the death In the event that the director terminates his or her office before the natural term, the law states that the termination of the office will take effect when the director will be replaced and the new director has accepted the appointment (director will remain in office until this time, prorogatio). In the case of resignation, if the majority of the other directors remain in office, resignation will take effect immediately. In certain cases, the cause for termination of office is not or cannot be delayed (prorogatio cannot work), so the law establishes replacement mechanisms (see art. 2386 c.c.). Remuneration → 2389 c.c. → Is established by the bylaws or otherwise by the shareholders' meeting → Additional remuneration if directors have specific duties provided by the bylaws (cap to the total remuneration; listed companies: annual remuneration report) Prohibitions for directors → they can’t become shareholders/partners with unlimited liability in competitor companies → they can’t carry out a competing business activity → they can’t be directors or general managers in competitor companies (but the shareholders’ meeting can give an authorisation to do so, also ex ante in the instrument of incorporation) → listed companies: prohibition of using insider information (inder trading offense) → effects of the breach How directors work → sole director: performs all the duties and the powers of the administrative body Board of directors → the chair → resolutions (passed jointly, during apposite meetings with a majority vote) → validity of board of directors' resolutions (quorum and invalidity, art. 2388 c.c.) Directors’ interests (2391 c.c.) A director has an interest in a given operation (on his/her own behalf or on behalf of third parties) not necessary in conflict with the company’s interest. Procedure: - the director must inform other directors and the board of statutory auditors - if the director is a managing director, refrain from deciding on the operation by appointing the collective body in charge instead - in both case, suitably motivate the reasons why the transaction benefits the company - in the case of sole director, he/she must inform the board of statutory auditors and also the shareholders’ meeting as soon as possible The resolution taken in these cases, wich can harm the company, could be contested: → both if the director in conflict of interest voted and his vote was determinant to approve the resolution, → and if the obligations in terms of transparency, abstention and justification were not fulfilled. → Contracts concluded by the sole director with a conflict of interest are voidable at the request of the company under the general rules of representation (Art. 1394 c.c.) → Legitimation to contest the resolution and time limit: 90 days from the date of the resolution, by the board of statutory auditors, the absent and dissenting directors, and also by the directors who voted in favor if the director with a conflict of interest failed to comply with the disclosure requirements. → Company may act against the director to claim compesation for the damages arising from his/her actions or omission. Bodies with delegated functions (art. 2381 c.c.) → bylaws clause or shareholders’ meeting resolution → Executive committee (collective body) → Managing director (one-person body; could be one or more, if there are more managing directors they may act separately or jointly) → appointment by the board of directors → definition of delegated powers (generally deal with operational management, day-by-day) → responsibilities that cannot be delegated → relation between delegated bodies and other members of the board of directors → different responsibilities and liabilities divided between bodies with delegated functions and the board of directors Powers of representation (art. 2384 c.c.) → The power of representation concerns the external activity of the company: it is the power to act towards third parties in the name of the company. It is different from the power to manage the company, which concerns the internal activity, that is, the decision-making phase of the company's operations. → Board of directors: the bylaws or the appointment resolution must named the directors with the powers of representation. → If there are several directors with the powers of representation, it is necessary to enstablish if they can act separately or jointly.  Directive (EU) 2017/1132 Article 9 Acts of the organs of a company and its representation 1. Acts done by the organs of the company shall be binding upon it even if those acts are not within the objects of the company, unless such acts exceed the powers that the law confers or allows to be conferred on those organs. However, Member States may provide that the company shall not be bound where such acts are outside the objects of the company, if it proves that the third party knew that the act was outside those objects or could not in view of the circumstances have been unaware of it. Disclosure of the statutes shall not of itself be sufficient proof thereof. 2. The limits on the powers of the organs of the company, arising under the statutes or from a decision of the competent organs, may not be relied on as against third parties, even if they have been disclosed. 3. If national law provides that authority to represent a company may, in derogation from the legal rules governing the subject, be conferred by the statutes on a single person or on several persons acting jointly, that law may provide that such a provision in the statutes may be relied on as against third parties on condition that it relates to the general power of representation; the question whether such a provision in the statutes can be relied on as against third parties shall be governed by Article 16. → The power of representation of the directors is general: this means that it is not limited to matters within the corporate object. If directors perform acts outside the corporate object (ultra vires acts), they validly bind the company to third parties (they will be exposed to removal for just cause and, if a damage to the company occurs, to the company's action for liability). Limitations on the power of representation → Maximum protection of third parties' reliance → Lack of power of representation due to an invalidity of the appointment resolution is not enforceable against third parties, except upon the proof that the third parties had knowledge of it → Limitations on the power of representation provided with the bylaws or the resolution of appointment are not enforceable against third parties, except upon the proof that the third parties acted intentionally to the detriment of the company → Legal limits on the power of representation can be always enforced against third parties Directors’ liability → liability towards the company → liability towards the company’s creditors → liability towards individual shareholders and third parties Liability towards the company (Art. 2392, 2393, 2393-bis c.c.) Directors can be held liable for damages caused to the company if they don’t fulfil the obligations imposed to them by the law or by the bylaws, with a professional diligence. Limit → directors are not liable for negative economic performance resulting from the company's activities…it applies the so-called business judgment rule (it’s a rule drafted by the U.S. courts; under this standard, a court will uphold the decisions of a director as long as they are made (1) in good faith, (2) with the care that a reasonably prudent person would use, and (3) with the reasonable belief that the director is acting in the best interests of the corporation). Cassazione civile sez. I, 15/07/2021, n.20252 Amministratori: principio di sindacabilità delle scelte gestorie affidato al giudice e suo limite «Il principio di sindacabilità da parte del giudice delle scelte gestorie dell'amministratore, trova un limite nella valutazione di ragionevolezza delle stesse, da compiersi sia ex ante, secondo i parametri della diligenza del mandatario (art. 2392 c.c., anteriore alla novella introdotta dal d.lgs. n. 6 del 2003), tenendo conto della mancata adozione delle cautele, delle verifiche e delle informazioni preventive, normalmente richieste per una scelta di quel tipo e della diligenza mostrata nell'apprezzare preventivamente i margini di rischio connessi all'operazione da intraprendere». → Several directors: joint and several liability (art. 2392, par. 1, c.c.) → Directors appointed to carry out specific duties (art. 2381, par. 3, art. 2392, par. 2, c.c.) → Fault-based liability (art. 2392, par. 3, c.c.) Who has the legal entitlement to promote the liability action against the directors? → ordinary shareholders’ meeting (resolution) [→ directors’ removal is not always automatic] → board of statutory auditors (resolution passed with the majority vote of two thirds of its members) → insolvency procedure: insolvency practitioner → liability action taken by the minority (art. 2393-bis c.c., 1/5 of the share capital, 1/40 of the share capital for open companies limited by shares) → Renunciation to the liability action or settlement (resolution of the shareholders’ meeting, but there must be no vote against by the 20% of the share capital or the 5% in open companies limited by shares) → Prescription (timelimit): 5 years after the termination of office by directors Liability action taken by the company’s creditors (art. 2394 c.c.) Directors can be held liable to the company’s creditors if they fail to fulfil their obligations to keep the company’s assets intact. So, creditors can take a liability action only if the company’s assets are insufficient to pay them. → Legitimation to take the liability action ex art. 2394 c.c. → Prescription (timelimit): 5 years from the day on which the insufficiency of the company's assets becomes apparent or from the day on which creditors could reasonably have had knowledge of it → Interference between liability action taken oh behalf of the company and this liability action Liability action taken by individual shareholders and third parties (art. 2395 c.c.) Directors may be held liable to individual shareholders and third parties for damages caused to them directly (damage should not only reflect the damage caused to the company), as a result of intentional or negligent actions. → Requirement: 1) the directors must have acted unlawfully while performing his/her duties; 2) there must be a direct damage to the individual shareholder’s or third party’s assets. → Prescription (timelimit): 5 years from the time when the act that prejudiced the shareholder or third party was performed The last liability is very different from the first and the second, because it is not a contractual liability (i.e., it does not arise from the breach of pre-existing obligations). In this case, the burden of proof is much heavier and more difficult.