1. The case examined by the Court of Milan
Two quota-holders belonging to the quota-holders’ minority of a limited liability company (“Alfa S.r.l.”), owners of a participation equal to the 45% of the corporate capital, challenged the resolution of appointment of the sole director because – in their opinion – the resolution has been taken by the quota-holders’ majority without any respect for the Company’s by-laws.
Such defect did not concern the subject matter of the resolution, but the decision-making process: in the view of the quota-holders’ minority the resolution was meant to be adopted through an appropriate “general meeting resolution” and not through a “written consultation”, as in fact happened.
It is worth reminding that, pursuant to the Italian Civil Code, such resolutions can be adopted through:
- a resolution approved within a quota-holders’ general meeting resolution, following the so called “metodo collegiale” (collective method), which requires the physical attendance of the quota-holders in the same meeting, the simultaneous discussion and the resolution on the agenda (Article 2479 bis of the Italian Civil Code);
- written consultation, expressing the consent with respect to a written text submitted by the proposing quota-holder (Article 2479, paragraph 3 of the Italian Civil Code).
The choice between the two methods described above was crucial for Alfa S.r.l. considering that:
- the resolution needs to be adopted through the general meeting’s decision-making process if it is required by a number of quota-holders that holds at least the 1/3 of the corporate capital (Article 2479, paragraph 3 of the Italian Civil Code); only in the case of the general meeting’s decision making process, Alfa S.r.l.’s by-laws require a participation of the 70% of the corporate capital, so as to deem always necessary the presence of the minority quota-holders for the validity of the meeting (the so called “meeting quorum”);
- the decision-making process for resolutions through written consultation requires the sole absolute majority of voting rights.
In the examined case, the majority of quota-holders decided to opt for the quota-holders’ general meeting in order to decide on the appointment of the sole director. The quota-holders’ minority did not participate to the meeting and in such a way the quorum of the 70% could not be reached. As a result of this behaviour, the shareholders’ majority decided to appoint the sole director through written consultation since at that stage they represented more than the half of the share capital of the company and they justified this resolution claiming that is was necessary to overcome a risk of paralysis of the company.
The quota-holders’ minority challenged this resolution, claiming their right to demand that such resolution must be taken in accordance with the law, meaning in accordance with the quota-holders’ general meeting, without prejudice for the reinforced quorum (70%) set out in the by-laws.
]2. The decision of the Court of Milan
The Court of Milan, in the precautionary procedure, has held that the appointment of the sole director of Alfa S.r.l. has been adopted by the majority of the quota-holders in violation of the provisions contained in the Company’s by-laws.
In fact, the decision taken by the majority of quota-holders to use the method of the written consultation was finalized to exclude the quota-holders’ minority from the decision (their 45% was not sufficient to impede the majority of the quota-holders from reaching the quorum of 50% + 1).
The Court of Milan has then added that the minority of quota-holders have the right and not the obligation to participate to the quota-holders’ general meeting with the consequence that the exercise of such right (meaning the participation or not to the general meeting) cannot be defined as per se “instrumental”.
Conversely, according to the Court of Milan, the abuse of right may take place when the non- participation of the quota-holders’ majority to the general meeting is intended to hinder the rights or the interests of the company or of the quota-holders’ majority.
For all these reasons the Court affirmed that “the prejudice suffered by the quota-holders’ minority which consists in seeing the Company managed by a person which they do not trust (trust that is decisive according to the by-laws, given the provision of a particularly reinforced majority), prevails over the eventual prejudice that the company may suffer as a consequence of the suspension the resolution of appointment”.
Such resolution has been declared invalid.
This decision of the Court of Milan gives a chance to examine the matter in question, that has already been analysed by the Italian jurisprudence.
3. Abuse of power and abuse of right
Until the fifties Italian judges have recognised that a resolution taken in a “fraudulent” manner and affecting the rights of the other quota-holders (mostly of the ones belonging to the quota-holders’ majority) could be considered legitimate, regardless of the violation of specific law provisions or for the ones set out in the by-laws.
By way of example these are cases regarding the reduction and contextual reconstitution of the corporate capital, with consequent exclusion from the same of the quota-holder belonging to the quota-holders’ minority that was not able to take part in such reconstitution. Similarly, cases of repeated growth of share capital, can be taken in consideration, which bring to the progressive dilution of the participation of the quota-holder belonging to the quota-holders’ minority.
Part of the Italian jurisprudence considered these behaviours as an abuse or an excess of power in all cases in which the quota-holder which belongs to the quota-holders’ majority pursues a personal interest or an interest contrary to the company’s interests or hinders in a fraudulent manner the rights of the other quota-holders.
According to a second interpretation, prevailing nowadays, the abuse of the majority can be considered as a violation of the general obligation to perform the agreement under the principle of good faith pursuant to Article 1375 of the Italian Civil Code (Decision No. 27387, Italian Supreme Court of Cassation, 12 December 2005).
The annulment of the resolution, then, may require the proof that the decisive power to vote of the quota-holder belonging to the quota-holders’ majority: (i) has been exercised in a fraudulent manner in order to hinder the interests of the other quota-holders; or (ii) was effectively intended to grant benefits of quota-holders’ majority without justification and hindering the rights of the quota-holders’ minority, in violation of the principle of good faith that should govern the performance of the agreement.
4. Which mean of protection?
If a resolution has been taken on the basis of an abuse of company rights recognised to the quota-holder which belongs to the quota-holders’ majority, the quota-holder which belongs to the quota-holders’ minority can ask for the annulment of such resolution or for its “removal”.
The same cannot be stated with certainty if the abusive behaviours are related to the quota-holder belonging to the quota-holders’ minority, because such behaviours have undoubtedly hindered, from a practical point of view, the adoption of the resolution.
In these latter cases the Italian jurisprudence states that the only mean of protection may be the possibility to obtain a compensation for the damages suffered as a consequence of the non-adoption of the resolution.