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08 July 2019
Article 2391(1) of the Civil Code states that:
the administrator must give notice to the other directors and to the board of statutory auditors of any interest that, on his own behalf or on behalf of third parties, he has in a company's activities specifying the nature, term, origin and scope of such an interest.
The code also sets out specific rules in the event that a chief executive officer (CEO) or director bears such interest, which may also be an extra-company interest. Until the duty to inform is properly fulfilled by a company's CEO or director, it cannot legitimately carry out transactions.
In the event that such a conflict affects the position of a CEO or managing director, the latter cannot vote in the relevant board of director's resolution on the subject of the conflict.
In Decision 126/2019 (following a ruling on the same topic by the Supreme Court of Cassation, Section II, 17 December 2018, 32573), the Supreme Court of Cassation ruled that the duty of transparency imposed by Article 2391(1) of the Civil Code with regard to "other directors and the board of statutory auditors" goes beyond the role held by a company director and must be examined independently of such role.
In fact, such duty need not be linked to a resolution of a board of directors or executive committee, as under Article 2391(2) and 2391(3) of the Civil Code, the general duty of fairness and transparency required by the first paragraph of the rule is nonetheless applicable and company directors must inform other board members of any relevant interests that they may have.
The Supreme Court of Cassation also pointed out that this duty also applies if knowledge of a potential conflict is publicly available, as this information must nonetheless be provided by directors in potential conflict with other directors and the board of statutory auditors regardless of whether the information was already available prior to a board meeting.
The principle envisaged by the Supreme Court of Cassation's decision is highly relevant because the violation of the duties set out in Article 2391(1) of the Civil Code is a crime if the infringement results in damage to a company. Supreme Court of Cassation Decision 29605/2014 holds that "the damage caused to the company or to third parties is a constitutive element of the case and can consist in any kind of prejudice, even not strictly patrimonial".
Ethical damages can apply and this confirms the assumption that the transactions provided for in Article 2391(1) of the Civil Code are not only those that affect the management power of a social enterprise; in fact, the transparency duty is required for meetings of board of directors vested with control tasks (ie, regulatory and legal supervision on the company's deeds) for which the need for transparency appears to be just as relevant.
Supreme Court of Cassation Decision 126/2019 has emphasised the duty of transparency and fairness to which company directors and CEOs in Italy must adhere.
For further information on this topic please contact Rachele Vacca de Dominicis at Grieco e Associati by telephone (+39 06 420 3881) or email (email@example.com). The Grieco e Associati website can be accessed at www.griecoassociati.com.
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