Legal guide for company directors and CEOs in Italy

  1. ESG obligation for Directors and CEOs
    1. 1. Do existing directors’ duties contain obligations that apply to matters that could be categorised as an ESG consideration, e.g. the environment, employee welfare? 
    2. 2. Are there other obligations of directors that relate to ESG considerations, e.g. health and safety, gender pay inequality, etc.?
    3. 3. What recent changes have occurred or are expected with respect to directors’ responsibilities in relation to ESG considerations?
    4. 4. What obligations do directors have in relation to ESG disclosure and/or reporting?
  2. Directors duties and responsibilities
    1. 1. What form does the board of directors take?
    2. 2. What is the role of non-executive or supervisory directors?
    3. 3. Who can be appointed as a director? 
    4. 4. How is a director appointed?
    5. 5. How is a director removed from office?
    6. 6. What authority does a director have to represent the company?
    7. 7. How does the board operate in practice?
    8. 8. What contractual relationship does the director have with the company?
    9. 9. What rules apply in respect of conflicts of interest?
    10. 10. What other general duties does a director have?
    11. 11. To whom does the director owe duties?
    12. 12. How do the director’s duties change if the company is in financial difficulties?
    13. 13. What potential liabilities can a director incur?
    14. 14. How can a director limit his/her liability?
  3. Coronavirus (COVID-19) considerations for directors
    1. 1. What are the key issues for directors during the COVID-19 crisis?
    2. 2. What government relief measures have been made available to directors?
    3. 3. What changes have been made to directors’ duties as a consequence of the COVID-19 crisis?

ESG obligation for Directors and CEOs

1. Do existing directors’ duties contain obligations that apply to matters that could be categorised as an ESG consideration, e.g. the environment, employee welfare? 

In Italy there is no all-inclusive legislation covering the various environmental, social and governance (ESG) obligations of companies and, therefore, of their directors who are in charge of managing the company. However many ESG obligations can be traced back to different sector regulations, i.e. the environmental consolidation act, regulations on health and safety at work, company law in the civil code, regulations on the administrative responsibility of companies etc.

On the basis of these different and heterogeneous regulations, we can identify the main obligations of a company (and therefore of its management) that apply to matters that could be categorised as ESG-related:

Environmental

  • Correct waste management
  • Compliance with air emissions thresholds and, in general, with the environmental authorisations and regulations applicable to the company’s plant and to its specific industrial sector
  • Compliance with the authorisations and, in general, with the regulatory legislation of the company’s specific industrial sector

Social

  • Compliance with labour law regulations on duties, remuneration and, more generally, equal treatment of employees of the same level and seniority, as well as respect for human rights in the workplace
  • Compliance with legislation on health and safety in the workplace
  • Compliance with data protection (privacy) legislation
  • Production of products and services that respect the health and safety of customers, as well as the integrity and privacy of data processed in the production and marketing of products

Governance

  • Compliance with best practice principles of corporate governance
  • Respect of shareholders’ rights (including those of minority shareholders) as provided by law
  • Guarantee for all shareholders of equal treatment and adoption and application of anti-takeover measures
  • Transparency of corporate decisions and choices
  • Adoption of measures aimed at avoiding anti-competitive behaviour or insider trading
  • Adoption (not actually mandatory) of the organisational model (the “Model”) pursuant to legislative decree 231/2001 (“Decree 231/2001”), aimed at avoiding the commission of specific offences to the advantage and/or in the interest of the company and, therefore, at avoiding – as a consequence – the liability of the company for crimes committed by managers (see the specific section of this guide below)
  • Adoption (although not mandatory) of the so-called Code of Ethics, within the framework of the Model, and of policies aimed at recognising and respecting business ethics.

Listed companies

That said, for listed companies it is possible (not mandatory) to adhere to the Corporate Governance Code adopted for listed companies (i.e. the 2020 Corporate Governance Code), which contains in articles 1 and 5 provisions of an ESG nature, i.e. that (i) the board of directors leads the company towards sustainable success, the creation of long-term value for shareholders, taking into account the interests of other relevant stakeholders relevant to the company, and that (ii) the remuneration of directors, members of the statutory auditors and top management must be functional to the pursuit of the company’s sustainable success and take into account the need to dispose of, retain and motivate people with the skills and professionalism required by their role in the company. The remuneration policy is drawn up by the board of directors through a transparent procedure.

Benefit companies

It should be noted that 2016 Stability Law (i.e. law no. 208/2015) has introduced the so-called “benefit companies”: companies that pursue the purpose of making a profit for their shareholders, and at the same time, use profit as a means to create benefit for other categories such as employees, suppliers and the environment.

In benefit companies, the by-laws must indicate the common benefit purposes that the company intends to pursue. Directors have specific obligations and responsibilities in addition to those typical of directors of limited liability companies and stock companies:

  • The highest degree of diligence required by the nature of the office even in pursuing interests other than those related to the company and its shareholders, assessing the impact of management decisions on the further purposes set out in the by-laws
  • Identify the person or persons to whom entrusting tasks aimed at pursuing the purposes of common benefit (this task may also be entrusted to one of the directors by means of specific delegations)
  • Draw up a specific report on the common benefit, to be annexed to the annual accounts of the company.

2. Are there other obligations of directors that relate to ESG considerations, e.g. health and safety, gender pay inequality, etc.?

Obligations of directors which relate to ESG considerations are mainly those reported under question 1 above.

However, there is a growing conviction in Italy – supported by financial institutions, and especially by large investment funds – that companies which base their strategies and choices on ESG criteria, and are able to produce positive results for the environment and people, are companies that can achieve better business results. At the same time they are less exposed to risks. In short, a company that is able to comply with environmental and corporate social responsibility regulations is less subject to possible legal disputes.

In fact a company that tends to conform its activity to ESG criteria should be less open to legal actions as it expresses greater commitment to:

  • Scientific research
  • Innovation in terms of production capacity (i.e. innovation in operations and health and safety for personnel)
  • Transparency and trust with customers and partners
  • Reduction of risks linked to accidents or inappropriate practices.

Taking into account the targets of the 2030 Agenda, the Recovery Plan adopted by the Italian Government and the Directive on corporate due diligence and accountability proposed by the EU Parliament, it is foreseeable that new obligations – and incentives – will be imposed on companies relating to the use of environmental resources and the reduction of greenhouse gas emissions (aiming at creating the conditions for their reduction to zero), respect for human rights, production innovation and digitalisation.

3. What recent changes have occurred or are expected with respect to directors’ responsibilities in relation to ESG considerations?

Large investors think that companies with the best ESG ratings are also those that perform and cope better with the risks associated with emergencies or crisis situations. Particularly in 2020/2021, the pandemic and its economic consequences have led to a growing belief that ESG criteria can improve company performance and give companies greater control over their financial portfolios.

There is a belief that climate and business environment risk is an increasingly important component of investment risk. The more companies are able to manage their relationship with the environment, the more they are able to reduce climate-related risk factors and meet medium- and long-term objectives, even in the face of emergencies. This is a guideline to which directors of companies cannot remain indifferent to guarantee their companies financial resources.

Therefore in the near future, new regulations – e.g. on carbon tax and on the Emissions Trading Scheme (ETS) – are expected to be adopted in Italy to incentivise and/or impose new obligations on companies (and consequently on their management) aimed at:

  • Promoting the transition from the type of company that consumes raw materials, energy, time and human skills to the type of company that manages a responsible relationship with matter, energy and people
  • Promoting important transformation choices with regard to products and production processes, to remove from the environment the same amount of carbon dioxide that was necessary for production, and therefore, to achieve “carbon neutral” or “carbon free” products and production processes
  • Making available to consumers, including on product labelling, data of the so-called “life cycle product carbon footprint”, which measures the total greenhouse gas emissions generated by a product, from the extraction of raw materials to the end of its life
  • Managing the so-called “transition risk”, i.e. the risks linked to the energy, digital and business transformation of companies
  • Promoting the adoption of service transformation or “servitisation” models: a process that requires companies to sell, along with the product, value-added services integrated into the product itself – services that are not simply in addition to the sale of the product, but a central part of the offer itself
  • Promoting the adoption of the so-called “circular economy”: understood as a shift from a type of production and consumption in which each step consumes resources – i.e. raw materials and energy, until the raw materials and the energy of each product end their lifecycle, thus requiring further commitment and investment to manage their disposal – to a type of production and consumption in which the product is manufactured by using resources (among which increasingly renewables) in a more efficient way, and with a better relationship with the environment, thus to “give back” materials and energy to the environment in its lifecycle
  • Promoting innovation, creating new market opportunities thanks to new processes and technologies, digitalisation and smart working.

4. What obligations do directors have in relation to ESG disclosure and/or reporting?

The attribution by rating agencies of an ESG score assessed by large investors in their investment decisions requires disclosure of non-financial information that companies with higher capitalisation are required to release to the market. This obligation does not yet exist for smaller companies, except for the limited provision of article 2428 of the Italian Civil Code which requires that the directors’ reports on the annual accounts and on the consolidated annual accounts contain, where appropriate, non-financial performance indicators relevant to the company’s specific business, including information relating to the environment and personnel.

Listed companies

As far as large companies are concerned, pursuant to legislative decree 254/2016, the National Commission for Companies and the Stock Exchange (the “Consob”) has to supervise the disclosure of non-financial information such as ESG disclosure. The relevant regulation was published in January 2018 and requires large listed companies to publish a statement on non-financial issues (the “DNF”) such as environmental, social and personnel aspects, respect for human right, and the fight against active and passive corruption. In addition, legislative decree 29/2019 has also required listed companies to explain how the remuneration policy for directors contributes to the long-term interests and sustainability of the company.

The Model pursuant to Decree 231/2001

It may be added that for those companies which have adopted the Model (as explained under question 1 above), information flows to the company’s “supervisory board” are envisaged with regard to significant events in terms of:

  • Compliance
  • An economic-financial nature
  • Production and commercial activities
  • Developments in technology
  • Issuing of rules and regulations that could have an impact on the company’s activities
  • Occasional news like those, if they arise, relating to proceedings or investigations of alleged offences under Decree 231/2001
  • Information – even in anonymous form – of any origin, both internal and external to the company, concerning the possible commission of offences or violations of the Model, actual or potential.

Benefit companies

Finally, as anticipated under question 1 above, once a year directors of so-called benefit companies must draw a specific report, to be annexed to the annual accounts, by which they report to the shareholders on:

  • Specific activities undertaken in pursuit of the common benefit
  • How they have balanced the interests of shareholders and other stakeholders, and reasons why they have given preference to one over the other in certain circumstances
  • Levels of environmental and social performance achieved
  • Plans for future development.

Directors duties and responsibilities

Answers below focus on the rules relating to companies limited by shares –“Società per azioni” or S.p.A. They do not address the rules on other limited liability companies such as the “Società a responsabilità limitata” or S.r.l., which are generally companies with smaller capital. However, the liability rules are similar for directors of companies limited by shares and of limited liability companies.

1. What form does the board of directors take?

The management of Italian companies limited by shares may consist of one director (“amministratore unico”) or a board of directors (“consiglio di amministrazione”). The Italian Civil Code provides that the bylaws of the company should indicate the exact number of directors, or the minimum and the maximum number of directors, in which case the ordinary shareholders’ meeting will set the number.

2. What is the role of non-executive or supervisory directors?

Ordinary scheme

The board of directors often delegates its powers to an executive committee consisting of some of its members, or to one or more managing directors (“amministratori delegati”), whose mandate may be of a general nature or limited to single acts. All directors have the same rights and duties and manage the company jointly. This means that also the directors who are not managing directors have nevertheless the duty to oversee the management of the company and to intervene in order to prevent or limit damages which the company may incur.

In addition to the board of directors, a board of statutory auditors (“collegio sindacale”) has to be appointed in larger companies. This is an internal supervisory body whose role is to check that the company operates in compliance with the law. The board of statutory auditors includes regular auditors and alternate auditors. At least one effective auditor and one alternate auditor must be certified auditors. If the other members of the board of statutory auditors are not certified auditors, they must be listed in the register of professional accountants or be permanent professors of Economics or Law. The auditors cannot be directors of the company. The main function of the board of statutory auditors is the monitoring of the compliance of the management of the company with legal requirements.

Moreover, the Italian Civil Code provides for the appointment of a certified external auditor or auditing company to audit the accounts of the company. Companies that do not need to prepare consolidated annual accounts may grant this power to the board of statutory auditors. In this case, all the members of the board of statutory auditors have to be certified auditors. Listed companies must also have their accounts certified by external auditors.

In addition to the ordinary scheme, the Italian Civil Code provides for two alternative management schemes (seldom used in practice):

Dualistic scheme

In a so-called dualistic scheme, a management board carries out its duties in collaboration with a supervisory board.

The bylaws set the number of members of the management board, which may not be less than two. Such members hold office for 3 financial years and may be re-appointed after this time unless the bylaws provide otherwise. With the exception of certain particular provisions, the same rules regulating the ordinary board of directors also apply to the management board.

The supervisory board comprises at least three members. Such members need not necessarily be shareholders, but at least one of them needs to be a certified auditor. The supervisory board has a general duty to control the activities of the management board, and also has some of the powers that commonly pertain to the shareholders’ meeting in the ordinary system, such as the approval of the annual accounts of the company.

Monistic scheme

In a so-called monistic scheme, the entire management of the company is carried out by a sole entity, namely the board of directors. The appointment of the first members of the board of directors is made in the articles of incorporation. Any further appointment will be made by the shareholders’ meeting. The board of directors appoints some of its members to a “surveillance committee”.

Management is entrusted to the board of directors, and the surveillance committee has the powers which commonly pertain to the board of statutory auditors in the ordinary scheme. At least one member of the surveillance committee must be a certified auditor.

3. Who can be appointed as a director? 

Anyone fulfilling the eligibility criteria can be appointed to become directors of a company limited by shares with the following exceptions:

  • restricted categories i.e. minors, bankrupts, legally incapacitated persons
  • corporate bodies. 

In addition to these restrictions, Italian statutory provisions also provide for the following:

  • government employees, members of Parliament, brokers, magistrates, members of supervisory authorities (for example “Consob” (National Commission for Companies and the Stock Exchange) etc.) – may not be members of a board of directors
  • practising lawyers – may be appointed to a board of directors provided they are not appointed as sole directors, managing directors or chairmen of a board of directors vested with representative powers
  • individuals who have been appointed to the board of statutory auditors – may not be appointed to the board of directors of the same company. 

The articles of incorporation may provide for additional specific eligibility requirements.
As a general rule, there are no nationality requirements nor do directors have to be domiciled in Italy, except for nationals of a state which prevents Italian citizens from becoming a director of a company in that country (principle of reciprocity). Any person who has been appointed as a director of an Italian company is required to apply for an Italian tax code number.

4. How is a director appointed?

The method of appointment of directors is determined by law, the articles of incorporation (“atto costitutivo”), the bylaws (“statuto”) of the company and, in some cases, by shareholders’ agreements.
Upon incorporation of the company, directors are appointed in the constitutional documents of the company. During the life of the company, all directors must be appointed by a resolution of the shareholders’ meeting (with some exceptions for the dualistic scheme: see above). The company’s bylaws commonly contain detailed provisions relating to the appointment of directors, the quorum and majority requirements and, in some cases, the specific expertise and reputation that the director should have. Furthermore, the appointment of directors is frequently governed by provisions contained in shareholders’ agreements.

The minimum and maximum number of directors is established in the company’s bylaws.

If there are one or more vacant positions on the board of directors but the majority of the directors on the board hold office, the remaining directors have the right to co-elect a director. However, this resolution is subject to the approval of the board of statutory auditors of the company. The co-opted director will remain in office until the next shareholders’ meeting, which may confirm the appointment of the co-opted director or may appoint someone else. In the dualistic scheme, co-option of a director is not possible.

If there are one or more vacant positions on the board of directors and a majority of the directors on the board no longer hold office, the remaining directors must convene a shareholders’ meeting for the appointment of the requisite number of directors.

Directors’ appointments may only be for a term of up to 3 financial years. Such appointments expire at the shareholders’ meeting convened for to approve the annual accounts covering the last financial year of such term of office. If directors resign or are removed from office prior to the expiry of the term, a new director will need to be appointed, serving for the remaining period of office of the person he/she replaces. Directors may be re- elected if the company’s bylaws do not provide otherwise.

The bylaws very often provide for a “simul stabunt simul cadent” clause (if one director resigns, all other members of the board of directors cease to hold office).

The board of directors often delegates its powers to an executive committee made up of some of its members, or to one or more managing directors (“amministratori delegati”). The relevant mandate, which is always revocable, may be of a general nature or limited to single acts. However, some powers cannot be delegated (for example the drafting of the annual financial statements).

Once appointed, the directors need to register with the Companies Register within 30 days of acceptance of the appointment and will need to specify whether or not they have been granted representative powers and, if so, whether these have to be exercised jointly or not.

5. How is a director removed from office?

A director may resign from office at any time by notice to the board of directors and to the chairman of the board of statutory auditors, stating the reasons for the decision. Resignation is effective immediately. However, in the event of a resignation of the majority of the directors or of the sole director, resignation will only be effective once the majority of the new board or a new sole director have been appointed.

The shareholders’ meeting has the exclusive right to remove a director from his/her office at any time, although the director in question has the right to challenge such a decision. If the removal is not for a “just cause”, the director may claim damages and seek compensation. Removal is immediate and the shareholders’ meeting will need to nominate an immediate replacement.

Normally the bylaws of the company will contain provisions relating to the removal of members of the board of directors in the event of one or more directors ceasing to hold office or in the event the company’s equity holders change substantially.

The board of statutory auditors must notify the termination of office of any director to the Companies Register within 30 days of such termination.

6. What authority does a director have to represent the company?

The board of directors has all the necessary powers to pursue the company’s objectives, save for those powers expressly reserved to the shareholders’ meeting by law or by the bylaws. All members of the board of directors represent the company in its relations with third parties unless the articles of incorporation or the bylaws provide for restrictions on such representative powers. In practice, authority is commonly delegated to one or more managing directors or to an executive board. It is also common practice to appoint a chief executive (“direttore generale”) who is not a member of the board of directors. If such person is appointed by the shareholders’ meeting, he/she has the same responsibilities as a board member.

Restrictions on the powers of the directors contained in the bylaws or resulting from decisions taken by the competent bodies do not affect the rights of third parties, even if such decisions are duly made public, unless it can be proven that such third parties intentionally acted in a manner which was prejudicial to the company.

7. How does the board operate in practice?

As previously stated, the management is carried out either by a sole director (“amministratore unico”) or by the board of directors (“consiglio di amministrazione”). All directors have the same rights and duties and manage the company jointly.

The board of directors is a collective body and its meetings are validly held with the majority of the directors in office. Its decisions must be taken by 50% with the majority of directors attending the meeting. However, the bylaws may provide for higher attendance quorums and voting requirements.
The bylaws commonly contain provisions describing in detail the duties, responsibilities and powers of each director and the rules governing board meetings.

8. What contractual relationship does the director have with the company?

Directors are entitled to remuneration for services provided. The amount due will be fixed in the bylaws of the company or by the shareholders’ meeting. When special tasks are delegated to a director by the board of directors, additional remuneration may be granted by the board.

A director may also be an employee (usually a manager) of the same company, as long as his/her working relationship with the company meets all the requirements of subordinate employment.

9. What rules apply in respect of conflicts of interest?

Any director must inform the other directors and the board of statutory auditors of any interest he/she has, directly or as a representative of third parties, in a resolution, transaction or business involving the company. If the director is a managing director, he/she must abstain from carrying out the transaction and require the relevant resolution be passed by the board of directors. If the director is a sole director he/she must also inform the shareholders at the next meeting.

In the above cases, the resolution of the board of directors must be adequately justified by explaining the reasons for the transaction and the advisability of it for the company.

In addition, any resolution of the board of directors may be challenged within a period of 90 days by any director provided that he/she did not attend the meeting or voted against the relevant resolution, or by the board of statutory auditors, on the basis that:

  • the resolution is detrimental to the company
  • the above-mentioned “information duties” have not been complied with, or the resolution would probably not have been passed without the vote of the interested director.    

Moreover, unless authorised by the shareholders’ meeting, a director cannot:

  • be an unlimited partner in another company carrying out competing activities
  • carry out competing activities for himself/herself or on behalf of third parties, or hold office as director or chief executive in another company carrying out competing activities.  

10. What other general duties does a director have?

The responsibilities and obligations of directors are to manage the company in accordance with applicable statutory rules and bylaws. The management of the company shall be carried out in compliance with the duty to establish an organizational, administrative and accounting structure appropriate to the nature and size of the company; and be responsible for the timely detection of a crisis situation and the loss of business continuity.

Management shall be the exclusive responsibility of the directors, who shall carry out the operations necessary for implementation of the corporate purpose. Directors must act in the best interests of the company. They have a duty to oversee the management of the company and to intervene in order to prevent or limit damages which the company may incur.

Pursuant to Italian law, directors must comply with specific obligations relating to:

  • the keeping of the statutory books
  • the keeping of accounts
  • the fulfilment of registration requirements
  • the calling of shareholders’ meetings
  • the verification of assessment reports relating to contributions in kind
  • the observance of deadlines in respect of reductions of the company’s equity, mergers and acquisitions etc., and
  • commencing insolvency proceedings.

There are additional strict prohibitions in relation to directors’ actions which are aimed at safeguarding the interests of the company and third parties. For example a director may not:

  • represent a shareholder at the shareholders’ meeting
  • distribute profits illegitimately
  • disclose insider information, or
  • receive loans from the company.

The Italian Civil Code as amended provides for certain additional duties for directors of a company belonging to a group. Such directors must: (i) properly record any decision of the company involving the parent company, or any other company in the group, in the minutes of meetings of the board of directors; and (ii) state in all correspondence and acts of the company that the company is controlled by a parent company and must register the company in a list of “controlled companies” with the Company Registry. 

Directors not complying with the above requirements are directly liable for any damage suffered by the shareholders or any third party as a consequence of their failure to do so.

11. To whom does the director owe duties?

Directors are not personally liable for the commitments of the company. Directors are liable for damages for non-compliance with their statutory duties and prohibitions (see above). Normally, all directors of the board are jointly liable towards the company, the shareholders and third parties for all damages due to the unlawful conduct of one member of the board.

The company may bring legal action against a director within 5 years of the termination of the director’s office, provided that the shareholders’ meeting approves such proceedings. Approval of the resolution by shareholders representing at least one fifth of the share capital will result in the automatic removal of the director against whom the legal proceedings are commenced.

Even without a resolution of the shareholders’ meeting, minority shareholders representing at least one fifth of the company’s capital (one fortieth or less in listed companies) or a different percentage (not higher than one third of the company’s capital) as provided in the bylaws, may institute legal proceedings on behalf of the company in respect of the liability of the directors for breach of their corporate duties.

Creditors of the company may hold the directors liable for damages if they did not comply with their statutory duties to safeguard the company’s equity (for example omitting to call a shareholders’ meeting to raise the company’s capital in case of losses) or if the directors’ negligent management causes the company’s insolvency. For a period of 5 years, the board of directors is liable for damages to individual shareholders or third parties for any fraudulent conduct in its management duties (for example, false information).

12. How do the director’s duties change if the company is in financial difficulties?

Directors have the duty to establish an organizational, administrative and accounting structure appropriate to the nature and size of the company; be responsible for the timely detection of a crisis situation and the loss of business continuity; and to take action without delay for the adoption and implementation of one of the instruments provided for by the law for overcoming the crisis and the recovery of business continuity.

When the capital of a company has decreased by more than one third as a result of losses, directors must immediately call a shareholders’ meeting for appropriate action. A report on the company’s financial position must be submitted to the shareholders’ meeting. If by the end of the following financial year the loss has not decreased to less than one third, the ordinary shareholders’ meeting approving the annual accounts must reduce the capital in proportion to the losses incurred. In the absence of such a reduction, the directors must ask the court to order that the capital be reduced in proportion to the losses shown in the annual accounts. 

If, due to the loss of more than one third of the share capital, it falls below the minimum threshold required by law, the directors must immediately convene a shareholders’ meeting to resolve on the reduction of the share capital and the simultaneous increase to an amount not lower than the said minimum, or else to transform the company. 

Failing the above actions, the company has to be liquidated. Upon occurrence of such cause for termination of the company, and until the time of delivery to the liquidators of the company’s books, of a statement of accounts as at the date of effect of the termination and of a statement of their management for the period since the last approved financial statements, the directors shall retain the power to manage the company, solely for the purpose of preserving the integrity and value of the company’s assets.

Directors are personally and jointly and severally liable for damages caused to the company, shareholders, creditors and third parties, for acts or omissions carried out in violation of that. 
When the liability of the directors is ascertained, and without prejudice to the proof of a different amount, the indemnifiable damage shall be presumed to be equal to the difference between the shareholders’ equity on the date on which the director ceased to hold office or, in the case of the opening of bankruptcy proceedings, on the date of the opening of such proceedings and the shareholders’ equity determined on the date on which a cause for termination of the company occurred, less the costs incurred and to be incurred, according to a normal criterion, after the occurrence of the cause for termination and until the completion of the liquidation. 

If bankruptcy proceedings have been opened and there are no entries in the accounts or if, because of the irregularity of the accounts or for other reasons, the net assets cannot be determined, the loss shall be liquidated to the extent of the difference between the assets and liabilities established in the proceedings.

13. What potential liabilities can a director incur?

In addition to the liabilities anticipated under paragraphs 11 and 12 of this guide, companies’ directors may be held liable for certain actions that constitutes criminal offences pursuant to law. Just by way of example, they may be held liable for:

  • false corporate communications: if in order to obtain an unfair profit for themselves or others, in the financial statements, reports or other corporate communications to shareholders or the public, required by law, they knowingly expose material facts that are not true or omit material facts whose disclosure is required by law on the economic, equity or financial situation of the company or group to which it belongs, in a way that is concretely likely to mislead others
  • prevented control: if by concealing documents or other suitable devices, they prevent, or in any case hinder, the performance of the control activities legally attributed to shareholders or other corporate bodies
  • transactions to the detriment of creditors: if in violation of the provisions of the law protecting creditors, they carry out share capital reductions or mergers with other companies or demergers, causing damage to creditors
  • financial betrayal: if having an interest in conflict with that of the company, in order to procure for themselves or others an unjust profit or other advantage, they perform or contribute to deliberate acts of disposition of the company’s assets, intentionally causing financial damage to the company
  • corruption between private individuals: if also through a third party, they request or receive, for themselves or others, money or other benefits not due, or accept the promise, to perform or omit an act in violation of the obligations inherent to their office or loyalty obligations
  • stock manipulation: if they spread false information, or carry out simulated transactions or other artifices concretely capable of causing a significant alteration in the price of unlisted financial instruments or for which no application has been made for admission to trading on a regulated market, or to significantly affect the public’s confidence in the financial stability of banks or banking groups.   

Moreover, the Legislative Decree No. 231 of 8 June 2001 (the “Decree 231/2001”) provides for an administrative liability of a company for criminal actions committed directly by its directors, chief executive officers or employees in the interest of and/or to the advantage of the company itself.

More precisely, the company may be held liable for criminal actions committed by: directors, chief executive officers or persons with organizational or managerial roles within the company, and employees subject to the control of such directors, chief executive officers or persons with organizational or managerial roles. Criminal actions committed by such directors/officers/employees may also lead to liability of the company if they are deemed to have been executed in the interest of or in order to bring an advantage to the company.

The Decree 231/2001 provides for a list of possible crimes, which may lead to the liability of the company. Only by way of example, these crimes include corruption, bribery, misappropriation to the detriment of the State, false accounting, corporate crimes, health and safety breaches, money laundering, cybercrimes, environmental crimes etc.

One or more of the following penalties may be imposed on a company for a criminal action committed by one of its directors/officers/executives: a monetary penalty and, in some circumstances, a penalty prohibiting the practice of the activity or the suspension of the administrative authorizations needed for business, or other provisional measures.

According to the Decree 231/2001, a company will not be deemed liable if it can prove that the company has approved an organizational model (the “Model”), introduced and implemented before the relevant crime was committed, and the control on the implementation of the Model has been assigned to a particular body of the company with management and control tasks (the “supervisory body” or “Organismo di Vigilanza”).

14. How can a director limit his/her liability?

A director will not be held liable in the event that:

  • he/she did not attend the relevant board meeting, provided that he/she verified the minutes, recorded his/her disagreement in the relevant corporate book, and informed the chairman of the board of the statutory auditors immediately of the unlawful resolution, or
  • he/she attended the relevant board meeting but voted against the resolution and informed the chairman of the board of the statutory auditors. 

Coronavirus (COVID-19) considerations for directors

1. What are the key issues for directors during the COVID-19 crisis?

Solvency and work

Directors of companies must be able to manage the risks for: (i) the business of the company; (ii) its supply chain continuity and the cash flow, by monitoring cash-in and inventory and centralizing payments and  expenses; (iii) the health and safety of the employees of the company – first of all through the obligatory use of  smart working; and (iv) the future of the company by developing and implementing new strategic risk management systems and shining a light on new possibilities for improvements to the business.

They must also consider which of the financial and economic measures made available by the government may be necessary to protect the integrity of the company’s equity (please see following paragraph on relevant relief measures).

Directors of companies shall have to continue the activities of: (i) assessing the risk of accidents deriving from COVID-19 (i.e. the risk of infection of employees at the workplace); (ii) implementing and monitoring the implementation of the appropriate measures in accordance with the protocol to regulate measures to combat and contain the spread of COVID-19 virus in the workplace; (iii) updating and monitoring the application of  the company’s health and safety procedures; and (iv) updating and monitoring the application of  the risk assessment document (the “DVR”) by taking into account such risk.

Logistics

Law decree No. 18 of 17 March 2020 (the “Decree”) has laid down specific corporate provisions to mitigate some logistics problems mainly due to the social distancing precautions to be adopted and the slowdown of operational and accounting activities within companies in the emergency context of the COVID-19 epidemic. For example, also in derogation of the various provisions of law and the bylaws, for shareholders’ meetings convened until 31 December 2021 (or if later, should the state of emergency is extended):

the notice to convene shareholders’ meetings may provide for the possibility to vote by mail or email and to attend the meeting by tele/videoconference call. The shareholders’ meeting may even be held exclusively by telecommunication means, however the identification of participants, their participation and the exercise of voting rights must be assured

the presence in the same place of the chairman, secretary or notary public is not required expression of the vote in limited liability companies may be made by written consultation or by express written consent.

These provisions are also deemed to apply to board of directors meetings.

2. What government relief measures have been made available to directors?

Directors have to assess if and which financial and economic measures, among those decided by the government in the COVID-19 crisis, are necessary for their companies to preserve their financial liquidity and activate the procedures to make them available to them. Said measures include inter alia:

deferment of some tax, social security contributions and VAT payments

specific measures for the company/entities requesting the intervention of the Central SME Guarantee Fund up to 31 December 2021, such as the possibility of an immediate access to credit

financial measures from which SMEs damaged by COVID-19 may benefit in relation to their indebtedness towards banks, financial intermediaries and institutions, provided that their indebtedness has not to be considered as an impaired exposure

measures through the Cassa Depositi e Prestiti S.p.A. (an Italian financial institution controlled by the Ministry of Economy and Finance and, as minority shareholders, by various banking foundations), which may intervene in favor of banks and other entities carrying out credit operations which have granted loans to companies with a certain turnover reduction as a consequence of the COVID-19 emergency

the possibility for companies to request that Chambers of Commerce issue certificates in English about the existence of force majeure due to the COVID-19 emergency (stating that the company has not been able to fulfil contractual obligations (for example those contained in supply agreements) within the agreed terms for unforeseeable reasons beyond the company’s control)

measures to support the workforce with allowances, bonuses, contributions and incentives such as, among others, those for companies which had to suspend or reduce their ordinary work activities due  to the epidemiological emergency and do not benefit from the ordinary supplement fund (the “CIG”).

3. What changes have been made to directors’ duties as a consequence of the COVID-19 crisis?

Duties of companies’ directors have not changed as a consequence of the COVID-19 crisis, but their efforts have to focus on the adoption of measures to guarantee supply chain continuity and the company’s cash flow, the health and safety of employees (by implementing and monitoring the application of the protocol to combat and contain the spread of the COVID- 19 virus in the workplace and the updating and the application of the DVR), and evaluation of the financial and economic measures made available by the government in order to face the present crisis.

As a general rule, directors have the duty to establish an organizational, administrative and accounting structure appropriate to the nature and size of the company; be responsible for the timely detection of a crisis situation and the loss of business continuity; and take action without delay for the adoption and implementation of one of the instruments provided for by the law for overcoming the crisis and the recovery of business continuity. See paragraphs 10 and 12 of this guide for the main rules directors have ordinarily to comply with.

However, during the COVID-19 emergency, most of such rules – aimed at protecting the maintenance of  share capital and traditionally seen as a guarantee for social creditors – are probably disregarded by a large number of companies which risk a reduction of their share capital and negative equity or, even worse, being considered in crisis or insolvent.

For these reasons, the entry into force of the Crisis Code has been deferred until 16 May 2022 and the relevant reporting duties of statutory auditors and the so-called “qualified” public creditors (the tax agencies and the National social security institution) in relation to the possible over-indebtedness of the company have been deferred until 31 December 2023.

Portrait ofPietro Cavasola
Pietro Cavasola
Managing Partner
Rome
Portrait ofSerena Carroli
Serena Carroli
Counsel
Rome