Management duties and possible reporting to the Court for breach pursuant to section 2409 of the Italian Civil Code

By means of decision No. 9119 of October 18, 2019, the Court of Milan examined the issue of the possibility of filing a complaint with the court pursuant to section 2409[1] of the Italian Civil Code, in order to react against the misconduct of the sole director of two joint stock companies belonging to the same group, operating in the pharmaceutical industry, for breach of his duties pursuant to section 2086,[2] paragraph 2, of the Italian Civil Code, as amended by the New Insolvency Code.

In light of the above, the court revoked the sole director of the two companies and appointed an extraordinary judicial director to (i) carry out ordinary and extraordinary management activities (subject to authorization of the court); and (ii) verify that the companies were still able to conduct their business as going concerns, taking any necessary initiative in that respect.

More specifically, the main arguments against the management of the two companies were (i) absent and negligent conduct and (ii) violation of management duties, which resulted in a lack of the liquidity necessary for the companies to operate as a going concern.

The Court of Milan stated that a subsequent research of external financing was not sufficient to comply with the obligation provided under section 2086, paragraph 2, of the Italian Civil Code, since company management should have previously fulfilled its duties (i) to verify promptly and properly the company’s overall capacity to operate and (ii) to activate the necessary remedies as soon as possible.

You can find the decision of the Court of Milan at the following link:

[1] Section 2409 of the Italian Civil Code cites the possibility for shareholders representing certain majorities (i.e., from 1/10 up to 1/20 under certain circumstances) or statutory auditors to file a complaint with the court if they have serious grounds for believing that the directors committed material violations of their management duties that may cause damage to the company or a subsidiary. After such a filing, the court would need to make relevant inquiries and take the necessary action.

[2] “[…] establish organizational, management and accounting structures appropriate to the nature and size of the company, including in relation to timely detection of a company crisis and the loss of its ability to operate as a going concern […]”.

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