Milan Tribunal rules on companies' business continuity and directors' removal for alleged management irregularities

On 18 October 2019 the Milan Tribunal ruled in a case concerning the removal of directors for alleged management irregularities. The tribunal highlighted some important principles regarding companies' business continuity, as set out in Article 2086 of the Civil Code, which has been amended by the Crisis and Insolvency Code (Legislative Decree 14/2019).

Pursuant to the new wording of Article 2086 of the Civil Code, entrepreneurs and company directors must ensure that the company has adequate administrative and accounting structures (that fit the company's size and turnover) to allow for a timely assessment of:

• any possible crises; or
• any risks to the company's business continuity.

In the case at hand, the Milan Tribunal appointed a judicial administrator to replace the board of directors due to management's failure to apply the principles set out in Article 2086.

The tribunal's award declared that the principles set out in Article 2086 provide for an essential corporate governance duty for companies and that any breach of such duty amounts to a gross management irregularity according to Article 2409 of the Civil Code. Therefore, the tribunal declared that the company's management had failed to implement a debt restructuring plan that had been finalised to restore the company's financial and economic management.

Further, the tribunal highlighted that companies' main obligations under Article 2086 are to:

• implement adequate administrative and accounting structures;
• finalise such obligation so that the company can timely assess any possible crises; and
• promptly implement the tools provided by law in order to restore the company's business continuity.

The tribunal's award is important as it constitutes a first interpretation of the new wording of Article 2086 of the Civil Code, as reformed pursuant to the new Crisis and Insolvency Code, evidencing boards of directors' duties and obligations thereunder.

For further information on this topic please contact Eugenio Vaccari at Grieco e Associati by telephone (+39 06 420 3881) or email (e.vaccari@griecoassociati.com). The Grieco e Associati website can be accessed at www.griecoassociati.com.