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Limited Liability Companies: Directors’ Liabilities

Matteo Centuori's picture
Published: 07/03/17 - Country: Italy

The Italian Corte di Cassazione[1] has recently stated on the liability of Limited Companies directors without proxies.

In a nutshell, the Court has determined that a Director ­– even not empowered – has to be considered responsible for the Company’s illegal or irregular action, if he cannot prove that, when there are illegality or irregularity warning signs on the Company’s management, he did not actively attempt to seek more information in order to prevent the contra legem event.

That being stated, in detail the case decided by the Corte di Cassazione has concerned the subpoena of all the directors – both with and without proxies - of a Company which had been declared bankrupt and their sentence for having caused the bankrupt. The directors without proxy have appealed the sentence, both in front of the Court of Appeal and then in front of the ‘Corte di Cassazione’, alleging a misinterpretation of the rules on the Director’s responsibilities set by the Italian Civil Code (i.e. the art. 2392, second paragraph [2]).

Deciding on the appeal, the Court has specified that the above mentioned article should be read together with the provisions of the art. 2381 of the Italian Civil Code, which states that the Directors have a duty to evaluate the corporate set up "on the basis of the information received", to evaluate the Company’s operating performance "on the report of the managing organs" and, finally, to “act being informed”, by exercising their right (rectius: their power) to ask to the empowered directors all the information about the Company’s management.

In others words, for the Judge, the art. 2381 of the Italian Civil Code set up a right/duty to be informed (receiving the information from the Managing Directors) and a right/duty to acquire the information (by asking the same to the Managers).

Therefore, starting from this premises, first of all the Judges cleared up that the Italian legal system does not set up a strict liability case. The Court, indeed, has held that the liability of the Directors without proxies may not descend from a generic lack of supervision, but it has to be connected to the breach of the duty to “act being informed”.

Secondly, the Supreme Court said that delegating Directors could not be considered “passive” recipient of information: indeed, since they can actively require data, they have the duty to act (or rather, to intervene to prevent an event) when, using the required diligence, they shall realize that a breach of law is put in place - or is about to be put in place - from the Managing directors.

More specifically, the Corte di Cassazione has pointed out that the failure to fulfil their disclosure duty cannot be justified by a mere difficultas praestandi (i.e. a difficulty of gaining information), but only by a complete impossibility of the duty fulfillment (i.e. when the Managing Director, who is making illegal operations, hides the information in order to avoid or prevent the discovery).

Last but not least, even stated the non-existence of a generic vigilance duty, in accordance of the diligence duty set up by the article 2392 of the Italian Civil Code and in accordance to the duty to act being informed set up by the art. 2381, sixth paragraph, of the Civil Code, the Directors without proxies cannot be considered held liable only because they do not have managing powers.

In conclusion it follows that a member of a Board of Directors which has granted proxies to some of its members, shall put in place all the necessary measures to be properly and diligently informed on the Company’s operations. On the contrary, he can be held liable for breach of its duty to be informed and to act on being informed for the unlawful / illegal actions fulfilled by the Company.

[1] The Supreme Court in Italy, whose function is also the law interpretation.

[2] The art. 2392, second paragraph set that the directors, notwithstanding the art. 2381, shall be jointly liable if, being aware of a prejudicial action, they didn’t act to prevent the action or to eliminate or reduce its harmful consequences.

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Matteo Centuori's picture

Matteo Centuori is a senior lawyer admitted to the Bar of Milan since 2009 and working at Interconsulting Studio Associate since 2004.

He regularly deals with law counselling for both judicial and extra-judicial domain, company law, civil litigation and contracts.