Directors liability – what’s new for non-executive directors?

The Italian Supreme Court (decision no. 17441/2016) stated that non-executive directors may not be deemed liable vis-à-vis the Company for the actions taken by executive directors, as a mere consequence of the breach of a general duty of supervision. Such statement is in-line with the Court’s precedents issued after the Italian company law reform of year 2003.

Before such reform, the law provided that each board member (including non-executive members) was subject to a general duty of supervision over the actions of the other directors.  As a consequencenon-executive members, could have been deemed liable for simply not having surveilled over the conducts of executives, if such conducts damaged the company.

Since the law has changed in year 2003 and there is no longer reference to such general duty of supervision, Italian judges issued several decisions stating that (i) non-executive members may not be deemed liable for actions taken by executive directors, as a mere consequence of the breach of a general duty of supervision and (ii) to be deemed liable for actions of executives, non-executive members must:

1) be aware that such actions may damage the company and not take any action to prevent the potential damage;

2) not gather further information and ask executives for explanations in case a certain transaction appears to be dangerous for the company.

The decision of the Supreme Court at hand is in line with the above described principles.

Furthermore under a different perspective, the same decision stated that the directors’ liability for damages caused to the company shall be deemed as a contractual liability.

Therefore, the company has the burden to:

(i) indicate the specific violations committed by the director in breach of his duties;

(ii) prove the damage suffered;

(iii) prove that such damage directly arises from such specific violations.

In order to defend his/her behavior, the director must prove that he/she acted in compliance with the duties provided by the Italian civil code. In particular, the directors granted with managing powers may be held liable if they do not observe the professional duty of care.

This general rule applies without prejudice to the application of the business judgement rule, under which the business decisions made by the directors may not be subject to the Court’s judgement, unless such decisions – if evaluated ex-ante – have been clearly imprudent and rash.

For more information on such decision, please refer to the following link.

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