Pre-litigation tools and procedure in M&A litigation

Shareholder vote

What impact does a shareholder vote have on M&A litigation in your jurisdiction?

Shareholders who expressed their favourable vote to a resolution approving a transaction cannot challenge it.

As regards joint-stock corporations, shareholders’ resolutions that are not in compliance with the law or company by-laws may be challenged only by those shareholders who were not present at the relevant shareholders’ meeting or that dissented or abstained from the vote (as well as by directors, supervisory board members or statutory auditors). As explained in question 9, resolutions can be challenged by shareholders who own shares with voting rights representing, on aggregate, at least one per 1,000 of the share capital, for companies recurring to risk capital and 5 per cent in other cases.

The by-laws may reduce or exclude such a requirement. Shareholders who do not represent the required share capital (and those who are not entitled to challenge the resolution) are entitled to seek damages suffered by the non-compliance of the resolution with the law or with the by-laws.

As to limited liability companies, quotaholders’ resolutions that are not in compliance with the law or by-laws may be only challenged by those quotaholders who were not present at the relevant quotaholders’ meeting or that dissented or abstained from the vote (as well as by directors, supervisory board members or auditors). The corporate capital quota needed to challenge the resolution is provided by the by-laws of the company.

Insurance

What role does directors’ and officers’ insurance play in shareholder litigation arising from M&A transactions?

Directors and officers are commonly insured (companies also often sign insurance policies covering directors and officers as part of their directors’ and officers’ insurance policy) against damage claims deriving from breaches of duties set out in the law or by-laws, as long as these do not derive from gross negligence or wilful misconduct.

It is therefore common that, when a director or officer is sued, he or she seeks indemnification from the insurance company. This is usually sought by filing a request for joinder upon the insurance company. Traditionally, insurance companies present pleadings that are twofold and aimed at denying that an obligation to indemnify the director or officer exists, and dismissing claims raised against the director or officer.

Burden of proof

Who has the burden of proof in an M&A litigation - the shareholders or the board members and officers? Does the burden ever shift?

As a general rule, article 2697 ICC establishes that the burden of proof is upon the party making the relevant allegation.

However, in the context of liability claims against directors and officers, the burden of proof depends on whether the shareholders claim losses suffered by the company or individually.

In the first case, the claim is grounded on a contractual breach, and the claimant or injured party is exonerated from demonstrating that a breach occurred as it has to be only alleged, while the defendant or injuring party has the burden to prove that it has complied with the relevant contractual obligation (Supreme Court 30 October 2001, No. 13533). The claimant or injured party shall, in any case, demonstrate the existence of the contract, the occurrence of a loss (as well as its quantification) and causation between the breach and the loss. Accordingly, when shareholders file a claim for damages on behalf of the company, ie, grounded on the failure of the board members or officers to comply with their duties, the shareholders (more correctly, the company) shall prove the existence of the contractual relationship between the parties and the damage, along with its quantification. On the other hand, the members of the board or officers shall prove that they complied with their duties or that the alleged damage cannot be attributed to their behaviour.

If the shareholders act personally and in their own interest against the board members or officers, the general rule under article 2043 ICC will apply, and the plaintiff or injured party shall provide evidence of the unlawful act or omission committed by the director or officer, the causation between the breach and the loss and the wilful misconduct or negligence of the director or officer.

Pre-litigation tools

Are there pre-litigation tools that enable shareholders to investigate potential claims against board members or executives?

As for limited liability companies, pursuant to article 2476 ICC, quota-holders who are not directors or members of the board have the right to obtain from the directors updates regarding the status of operations; and to examine the corporate books and records, even with the assistance of a professional adviser.

As for joint-stock companies, shareholders’ right to examine and make copies is restricted to certain corporate books (article 2422 ICC), as the control regarding correct management generally lies with the statutory auditors. Pursuant to article 2409 ICC, when there is a reasonable ground to deem that directors have committed a serious breach relating to management, possibly causing losses to the company or controlled companies, a certain number of shareholders (minimum thresholds can be modified by corporate laws) can refer the relevant facts to the competent court. The court may, inter alia, order an inspection or even appoint a judicial director.

In the framework of mergers, a copy of the following documents, inter alia, shall be shared with the shareholders (30 days before the meeting resolving upon the transaction): the merger plan; the financial reports of the last three years of the companies taking part to the transaction, along with the reports of the board of directors and auditing firm; and the up-to-date financial status of the companies taking part in the transaction (article 2501-septies ICC).

Each shareholder can inspect said documents and obtain a free copy of them.

Forum

Are there jurisdictional or other rules limiting where shareholders can bring M&A litigation?

Provided that the company is sued, the general rule under Italian law is that proceedings shall take place where the company has its headquarters or its registered offices (article 19 ICCP).

While by-laws can derogate from such provision and provide that claims shall be brought before a different court (articles 28 to 29 ICCP), that option is not applicable, inter alia, to claims raised by shareholders to challenge the validity of any resolution, including the one that authorises the merger or acquisition, pursuant to article 2378 ICC (this rule was confirmed by the Supreme Court in judgment No. 19039 of 11 September 2007), as well as to disputes between shareholders.

Further limitations are provided by law in relation to, inter alia, interim proceedings, enforcement proceedings and insolvency proceedings.

Furthermore, it is common that companies’ by-laws provide that any dispute among the company, shareholders and directors shall be settled through arbitration. Under Italian law, arbitrators are generally prevented from ordering interim measures, with very limited exceptions relating to the order of suspension of the effectiveness of resolutions.

Expedited proceedings and discovery

Does your jurisdiction permit expedited proceedings and discovery in M&A litigation? What are the most common discovery issues that arise?

Discovery does not apply to Italian judicial proceedings, and each party to the proceedings is free to file (or not to file) with the court the documents and evidence that it deems necessary to support its allegations. However, pursuant to article 210 ICCP, each party is able to request the court to order the other party or a third party to exhibit a certain document if relevant requirements are met (eg, the exact identification of the relevant document, the indication of the reasons why exhibition is sought and the relevance of the - alleged - content of the document to the case). The party against which exhibition is sought may object, inter alia, that the exhibition of the document would be prejudicial to itself or a third party (eg, in the case of a confidential document).

The Italian civil procedural system provides for a simplified trial governed by articles 702-bis et seq ICCP. Such simplified procedure can be used when collection of evidence is presumed to be easy. If the complexity of the matter requires a more articulated examination, the court can order the case to be decided through ordinary proceedings. This kind of proceeding cannot be used when the dispute, pursuant to article 50-bis ICCP, has to be decided by a panel of three judges. A panel of three judges is required, for instance, where specialised court divisions have jurisdiction over the matter (eg, court divisions having jurisdiction over a wide number of disputes possibly involving corporations, including without limitation liability claims against directors and officers, and disputes relating to any transfer of participation interests) or in the case of proceedings for challenges of resolutions of a shareholders’ meeting or of the board.

In any case, given the complexity of post-M&A litigation, it is highly unlikely that even residual claims (ie, those not falling under the cases reported above) will be initiated or decided through summary proceedings.