Liability for direction and coordination activity

The Court of Naples[1] examined the issue of liability for direction and coordination activity exercised by a Region (public entity) over a subsidiary (private company).

In the case at hand, the Court of Naples presumed the existence of direction and coordination activity since:

  • the Region owned a relative majority equal to 34.1% of the share capital (the remaining capital was apportioned in several shares and the relevant shareholders were mostly absent from shareholders’ meetings);
  • the bylaws of the company provided a slate voting system (“voto di lista”) for appointment of the members of the board of directors, accessible only to shareholders owning at least 25% of share capital;
  • the board of directors was composed of members proposed by the Region.

In particular, the Region decided to continue the business of the subsidiary (despite ongoing losses and the warnings of the statutory auditors) by pursuing its own interests and by de facto transferring negative results to the subsidiary, which eventually was declared bankrupt. Hence, the Court of Naples ruled that the Region was liable and ordered it to pay damages to its subsidiary.

According to Italian law, a company exercising direction and coordination activity is liable if it pursues its own interests or third parties’ interests and violates the rules of the management of the controlled company.

[1] Judgment dated November 7, 2019.

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