1. The breach of the fiduciary relationship within the BoD as autonomous cause of termination of the relevant members.

By decision no. 7396 of 29 June 2017, the Court of Milan has dealt with the controversial issue concerning the limits to the effect of the “simul stabunt simul cadent” clauses in the by-laws in order not to run into situations of abuse of rights.

In order to better understand the scope of the decision of the Court of Milan, it is necessary to illustrate the essential elements of the case at issue.

The event examined by the Court originates from the resignation of the majority of directors in office of a listed joint-stock company and from the consequent cessation of the entire governing body as a result of the application of a clause in the by-laws. Therefore, the BoD members terminated from office asserted that their revocation was without just cause and claimed compensation for not having received their fees and for damage to their professional image.

Basically, the plaintiff’s claims were based on the resigning directors’ abuse of Article 2386, second paragraph, of the Italian Civil Code, as well as of the “simul stabunt simul cadent” clause in the by-laws. In particular, it was maintained that allegedly only the shareholders’ meeting had the power to forfeit the entire governing body, since under the law it has the power to revoke directors.

The Court of Milan dismissed the plaintiff’s claims deeming that there was no supposition of revocation of the directors. However, the reasons of the Milanese panel can be understood only by illustrating the meaning of just cause.

2. The notion of just cause

The issue is widely discussed but scholars and case law have determined two types of just cause: (i) subjective, which is characterised by behaviours contrary to the by-laws obligations or to loyalty, diligence and fairness obligations; (ii) objective, which is qualified by situations unrelated to the director that do not turn into a default but are such as to neutralise the reliance on the capacities of said director.

In light of the foregoing, the just cause may consist of a conduct of the director or of a fact unrelated to the same, such as to prejudice the fiduciary relationship with the company. Anyway, it is necessary to point out that pursuant to Article 2393, third paragraph, of the Italian Civil Code, directors may be revoked by the shareholders’ meeting at any time, even if appointed in the articles of association, without prejudice to the directors’ right to compensation for damages whenever the revocation is without just cause.

The foregoing must be coordinated with Article 2386 of the Italian Civil Code, which grants the faculty to include in the by-laws clauses expressly providing that, upon termination of certain directors, also the remaining directors cease from their office thus causing the cessation of the entire BoD. Such a clause, as long as correctly applied, must be considered as a natural cause of termination of the office as director with no right to damages, since upon their appointment directors accepted the provisions of the by-laws. In a nutshell, it is possible to give an interpretations as to the legal nature of the “representations and warranties” according to two main strands.

3. The difference between legitimate use and abuse of Article 2386 of the Italian Civil Code

The criterion to recognize the proper application of the “simul stabunt simul cadent” clause in the by-laws from its abuse lies in the good faith.

Hence, it will be necessary to identify the peculiar elements of the actual case in point and the specific reasons that led to the resignation of the majority of the members of the governing body, in order to understand whether or not Article 2386 of the Italian Civil Code was used in a distorted and instrumental way in the case at issue. In particular, there is an abuse of Article 2386 of the Italian Civil Code every time the resignations of the majority of the members of the BoD are aimed at excluding only certain members of the board. An event that may occur if, following the dissolution of the entire governing body, the shareholders meeting appoints a new board made up of the same members belonging to the previous body with the exclusion of those terminated by virtue of the clause.

4. Conclusions

In the case examined above, the Court of Milan deemed lawful the cessation of the entire board of directors by virtue of the simul stabunt simul cadent clause since the seriousness of the conflicts and tensions arisen within the body justified the choice to resign of some members of the same. Therefore, that was a logical instrument to overcome a situation of impasse.

Hence, the Court of Milan did not deny that the “simul stabunt simul cadent” clause may be abused, but this is not the case when there are rational and objective needs that justify the decisions of the resigning directors.