Distribution of dividends and shareholders’ withdrawal right

According to a recent decision of the Italian Supreme Court, shareholders of an Italian joint stock company (“società per azioni”) may withdraw from the company in case they do not vote in favor of a shareholders’ resolution that introduces to the by-laws limits on the shareholders’ right to receive dividends.

In the case at hand, the shareholders of a merged company challenged the shareholders’ resolution whereby it was decided to include in the post-merger by-laws of the merging company strong limitations on the distribution of dividends (i.e., the distribution of dividends that are subject to the allocation of a substantial part of the profits to (i) the legal reserve (12%, instead of the 5% that is provided by law) and, (ii) the extraordinary reserve (40%).

In particular, the proportion of the profits that is to be allocated to the legal reserve was well beyond the limits that are provided under the Italian Civil Code.

In light of the above, the Court stated that:

  1. any amendments to the by-laws relating to the distribution of profits affects shareholders’ rights to receive part of the same profits;
  2. hence, since the amendment at hand adversely affected the shareholders’ right to receive dividends (due to the overall decrease in the amount of the distributable profits) shareholders who did not vote in favor of such amendment have the right to withdraw from the company.

The judgment of the Supreme Court is available at the following link: http://mobile.ilcaso.it/sentenze/ultime/21793

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