Pursuant to Article 2399, letter c), of the Italian Civil Code, statutory auditors whose patrimonial relationships with the company or its subsidiaries may affect their independence cannot be appointed and, if appointed, cease from their office. It has been questioned whether the case whereby a statutory auditor is a member of an association of professionals providing consultancy services to the same company reflects the case provided for by the law. Although the answer to the question was generally affirmative, doubts still remain as to the criteria adopted by the Supreme Court in order to determine the cases in which the independence of a statutory auditor can be actually considered as compromised.
1. The question
By decision no. 9392 of 8 May 2015, the Supreme Court confirmed the judgement of the Court of Appeal that had ruled against the objection to the statement of affairs filed by the former statutory auditor of the bankrupt company, who claimed the exclusion of the credits resulting from the fees due to him for having held said corporate office. In line with the decision of the appeal judge, the Supreme Court held that the credit claimed was inadmissible for the former statutory auditor being in a condition of incompatibility pursuant to Article 2399, letter c), of the Italian Civil Code, since when he was holding the office of statutory auditor, he was at the same time a member of the association of professionals providing consultancy services to the company and hence, in turn, he could expect to receive higher proceeds from the consultancy activity compared to the remuneration received for the performance of the office of statutory auditor. So, confirming the appeal decision, the Supreme Court has also validated the reason supporting the same, whereby the ground for ineligibility under Article 2399, letter c), of the Italian Civil Code would exist every time “proceeds from consultancy activity are higher for the association of professionals and, in turn, for its statutory auditor member, than to those paid to the latter for his/her auditing activity”. Consequently, the Supreme Court concluded that “the independence of the auditor is in danger every time the same may expect from the consultancy relationship a personal gain higher than that obtained from the remuneration as statutory auditor”.
2. Reference legislation
Article 2399, letter c), of the Italian Civil Code, by establishing the ineligibility as statutory auditor of those who are linked to the company “by a working relationship or by an ongoing relationship for the provision of consultancy or of services against payment, or by other financial relationships compromising their independence”, leaves a wide degree of discretion to the judge appointed to establish whether and to which extent the independence of the statutory auditor has been actually affected. Although it is undisputed that grounds for incompatibility exists where the statutory auditor is directly involved in the consultancy activity, the boundaries of the issue further blur in case the company has not a direct consultancy relationship with the statutory auditor but rather with the association of professionals of which he/she is a member. Indeed, in this circumstance it is doubtful whether the particular case outlined in Article 2399, letter c), of the Italian Civil Code could include the case in which the consultancy is provided by an associate or a partner of the statutory auditor. Case law and part of scholars deem that, in such event, the distinction must be determined using a criterion of comparison between proceeds: in brief, the independence of a statutory auditor will be considered as compromised where the profits he/she may obtain from consultancy activity – through the association of professionals to which he/she belongs – are higher than those owed to same for the auditing activity carried out in the company’s structure. Another part of scholars deem instead that the comparison should rather be made between the total income of the association of professionals and proceeds originating from the consultancy activity performed in favour of the company1. One may object, however, that the use of the criterion of comparison between proceeds as sole basis for the evaluation of the existence of grounds for incompatibility and forfeiture – as happened for the decision at issue – allows only a “partial” view of the condition of the statutory auditor, an approach that may lead to an excessively extensive application of the particular case described by the mentioned legislation.
3. The “partial” view adopted by the Supreme Court
The decision at issue is consistent with the opinion of those scholars who consider as relevant only proceeds due, directly or indirectly, to the statutory auditor, consequently excluding any reflections relating to the overall income received from the association of professionals. In particular, the Supreme Court stated that “it is necessary to evaluate financial impairment aspects by checking the quantity of proceeds originating from third parties’ collaboration destined to flow back into the statutory auditor’s personal assets compared to the amount of the fees for the office of statutory auditor.” Several legal authors underlined the limits shown by the adoption of a similar approach, especially when further elements are taken into account in addition to the merely financial one. First of all, it cannot be excluded that a statutory auditor may lack independence also in case the proceeds originating from the consultancy activity provided by the firm to which he/she belongs are minimum or even non-existent. Indeed, a conflicting interest of the statutory auditor may even emerge simply from the reputation of the client and from the consequent benefit that the association of professionals’ image receives from being appointed by the same. In the second place, one cannot but take into consideration the actual position of the professional inside the firm. Indeed, has highlighted by authoritative scholars, while it is correct to deem that, in the case the consultant is in a subordinate position to the statutory auditor, the consultancy activity may be attributed to the latter, it is necessary to carefully evaluate the opportunity to apply the criteria for the comparison between proceeds in the event the subordinate position is held by the statutory auditor. As a matter of fact, in this case it is clear that the statutory auditor’s independence cannot be considered as compromised only due to the fact that the remuneration he/she receives from the association of professionals is higher than the one received for holding the corporate office; this because the statutory auditor/professional, generally, receives from the firm a fixed pay not conditional at all on the return obtained by the firm itself as a result of the consulting activity provided in favour of the company. Finally, it would be advisable to take into account, on the one hand, the size and internal organisation of the association of professionals and, on the other hand, of the activity relating to the consultancy services performed that may be totally separate from the auditing activity carried out by the associate- statutory auditor. Therefore, in light of the foregoing, it is reasonable to believe that, for the purposes of a correct evaluation of the existence of grounds for incompatibility or forfeiture of a statutory auditor pursuant to Article 2399, letter c), of the Italian Civil Code, it would be preferable to carry out an analysis case by case and the analysis of the actual situation of conflict, whereby the criterion of comparison between proceeds should be one of the elements to be taken into consideration rather than the only element on which to base said evaluation.