Withdrawal of a shareholder from a joint-stock company: must the modification of the articles of association be “substantial”? – Shareholders

Disputes concerning the withdrawal of a shareholder often require a difficult balance: between the interest of the minority shareholder in getting rid of a stake that has become undesirable – on the one hand – and the interest of the majority shareholder in avoiding the payment (which can also be very expensive) for the liquidation of the shares – on the other hand.

In such a case, it is the legislator who has expressly provided for the cases in which a shareholder may withdraw, some of which are mandatory (article 2437 paragraph 1 of the Civil Code), and others which may be derogated from by law. (article 2437, paragraph 2, of the civil code), to which are added the cases provided for in article 2497-quater of the civil code with regard to management and coordination.

Of course, the legal provisions of the cases justifying the right of withdrawal are not sufficient, in themselves, to avoid disputes as to the legitimacy of its exercise and the claim resulting from the liquidation of the participation. This is the case, in particular, submitted to the Supreme Court and decided in a very recent judgment (Court of Cassation 27.06.2022 n° 20546). The joint-stock company (spa) Alfa was owned by Beta, with 52.13% of the share capital, and by Gamma with 47.87%. The articles of association included a pre-emption clause, which was later modified to exclude this restriction in the event of transfer to another company of the same group. Based on this amendment, Beta sold its controlling stake to another company in the same group.

Subsequently, Gamma – the minority shareholder – exercised its withdrawal, invoking:

Article 2437, paragraph 2, letter b) of the Italian Civil Codewhich provides for withdrawal in the event of the introduction or removal of restrictions on the circulation of shares, and

Article 2497-quater, paragraph 1, letter c) of the Italian Civil Codewhich provides for withdrawal upon commencement and termination of management and coordination activities, if this leads to a change in the risk conditions of the investment (and a takeover bid is not promoted).

This gave rise to a dispute concerning both the legitimacy of the withdrawal and the determination of the amount to be liquidated. First the Court of First Instance of Florence and then the Court of Appeal of Florence ruled out the existence of the precondition under article 2347, paragraph 2, lett. b) of the Italian Civil Code, stating that the the modification of the articles of association would not have led to a substantial modification of the preemption clause: in fact, a transfer to another company of the same group would not have led to a change in the company’s control center and, consequently, the exercise of the withdrawal would not have been legitimate.

The Court of First Instance had, on the other hand, recognized the legitimacy of the withdrawal on the basis of art. 2497-quater, paragraph 1, let. c) of the Italian Civil Code and fixed the amount of the liquidation, while the Court of Appeal reformed the judgment by completely excluding the right of withdrawal.

However, the Supreme Court overturned this decision on the basis of three considerations of a textual and systematic nature:

1. Article 2347, paragraph 2, letter b) of the Italian Civil Codethe withdrawal of which it allows in the event of the introduction or removal of restrictions on the circulation of shares, does not lay down any other requirement and, in particular, does not require that the modification of the restriction be of substantial importance;

2. on the contrary, in another case envisaged by the same article (2347, paragraph 1, let. a) of the Italian Civil Code), withdrawal is authorized in the event of a change in the corporate purpose, but only when it allows a significant change in the company’s activity: this specifies that when the legislator has deemed it necessary for a change to be substantial, it expressly provided for this purpose. On the contrary, if no provision has been made by the legislator, the Court cannot rule on the merits of the modification;

3. finally, Article 2355-bis, para. 4 of the Italian Civil Code provides that the limitations on the transfer of shares must appear on the share certificate: here too, the rule refers to any type of limitation, without any particular condition of materiality. If this applies to annotations, it must apply a fortiori to the exercise of withdrawal.

The Supreme Court’s conclusions seem logical and acceptable. However, one consideration remains: the resolution modifying the pre-emption clause dates from December 2012; the withdrawal was exercised at the beginning of February 2013; almost ten years later, the Court of Cassation definitively clarified the legitimacy of the withdrawal (reversing for the second time the result of the judgment). But it sent the case back to the Court of Appeal of Florence for the determination of the amount to be liquidated with the consequence – again – of the lengthening of the litigation.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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