Withdrawal-at-will clauses in by-laws of fixed-term joint stock companies: Italian Court of Cassation gives green light

Thanks to Francesco Manessi for collaborating on this article

Marking a significant shift in Italian corporate case law, the Italian Court of Cassation issued a decision on the right of withdrawal at will in joint stock companies with fixed term. The decision clarifies that in such companies the by-laws clause providing for the shareholder right to withdraw at will from the company is valid.

The appealed decision

The case stemmed from a shareholder’s appeal against a Cagliari Court of Appeal’s decision which, by confirming an arbitration award, deemed null and void a by-laws clause allowing withdrawal at will with a 180-day notice period in a joint stock company with fixed term until 2050 (the “Clause”). Specifically, the Court of Appeal argued that (i) the right to withdrawal at will should be granted only as a reaction of the shareholder to exceptional reasons related to corporate life such as to justify its exit from company, and (ii) the at-issue clause was contrary to Section 2437, paragraph 3, of the Italian Civil Code which grants the right to withdraw at will solely when the company is established for an unlimited term.

The Court of Cassation’s decision

The Court of Cassation (the “Court”) overturned the decision of the Court of Appeal. In fact, following a general analysis of withdrawal right under Italian corporate law, the Court focused on Section 2437, paragraph 4, of the Italian Civil Code which states that by-laws of non-public companies may provide withdrawal grounds additional to those provided by law.

Considering that provision, the Court held that the Clause must be considered valid for three main reasons:

  1. irrelevance of the company term: the Italian Civil Code[1] does not explicitly link withdrawal right to company term, rendering the Clause’s validity independent of the company’s fixed term;
  2. compliance with legislative intent: the Court clarified that the Clause was in line with the spirit of the 2003 reform of Italian corporate law. Indeed, the lawmakers’ intention was to broaden withdrawal rights beyond specific corporate decisions so to also include disagreements with general management. Therefore, the Court ruled that the withdrawal from the company is not to be deemed an exceptional remedy since the exercise of this right should also be allowed in cases where the shareholder no longer believes in the investment’s viability.
    In addition, the Court also responded to the objection that withdrawal at will would foster the risk of the company’s de-capitalization by clarifying that, in fact, the rules governing the withdrawal provide only for the reduction of corporate capital as a very last resort. For this reason, the Clause cannot even be considered as detrimental to the rights of other shareholders or the company’s creditors;
  1. investment incentive: the Court also highlighted that the ease with which a shareholder can withdraw from a company is a positive element, as it encourages potential investors to invest in the company: it goes without saying that an investor feels safer knowing it can easily extricate itself from a failed investment.

Decision No. 2629/2020 of the Court is available here.

[1] Section 2437, paragraph 4.

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