Italian law decree No. 23/2020 ("Decreto Liquidità"), New provisions involving certain aspects of business law

On 9 April 2020, following regular publication on the Italian Official Gazette, Italian law decree No. 23/2020 (the "Decree") came into force with immediate effect. The Decree's provisions aim at facing, by means of different measures, the crisis generated by the current COVID-19 health emergency.

The Decree's measures – consistently with those already implemented by means of Decree Law 18/2020, so-called "Cura Italia" Decree - include provisions concerning, inter alia, (i) the suspension of the applicability of certain Italian Civil Code provisions regarding capital reduction for limited companies; (ii) certain principles for the drafting of financial statements; and (iii) the suspension of the applicability of certain Italian Civil Code provisions regarding the repayment deferment ("postergazione") of quotaholders/shareholder loans.

1. Temporary provisions on capital reduction

Article 6 of the Decree provides that "From the date of entry into force of this decree until 31 December 2020, articles 2446, paragraphs 2 and 3, 2447, 2482-bis, paragraphs 4, 5 and 6, and 2482-ter of the Civil Code shall not apply. For the same period, the reduction or loss of corporate capital as per articles 2484, no. 4), and 2545-duodecies of the Italian Civil Code do not operate as cause of dissolution of the company ".

This provision impacts those rules of the Italian Civil Code governing the reduction of the corporate capital of limited companies (including joint stock companies (Società per Azioni) and limited liability companies (Società a responsabilità limitata)) as a result of losses. As a rule, pursuant to the articles mentioned above, when the corporate capital is reduced by losses (by more than one third or below the legal limit), the board of directors must immediately convene a quotaholders'/shareholders' meeting to cover the losses and restore the minimum corporate capital, or to resolve upon the dissolution of the company.

The Decree provides that the application of the above referred articles is suspended until 31 December 2020. Accordingly, with regard to joint stock companies, limited liability companies, partnerships limited by shares (Società in accomandita per azioni) and cooperative companies (Società cooperative), the reduction of the corporate capital below the legal minimum threshold will not constitute a cause for dissolution for each of such types of companies for the period considered.

Please note that, as specified by the Illustrative Relation, the provision regarding information flows towards shareholders, also provided for in Article 58 of Directive 1132/2017 in relation to joint stock companies, is still in force. According to such Article 58, in the event of a serious loss affecting the subscribed share capital, "(...) the shareholders' meeting must be convened within the period provided for by the laws of the Member States, in order to examine whether it is necessary to dissolve the company or adopt other measures".

In view of the exceptional state of crisis caused by COVID-19, which is also affecting companies in "healthy" economic conditions prior to the epidemic, the suspension of the applicability of the abovementioned rules is intended to prevent a general risk of winding-up of a large number of companies potentially interested (also in relation to the possible difficulties for companies in finding adequate resources for refinancing their activities). At the same time, the regulation is also aimed at "protecting" directors from the action for damages provided for by Article 2486 of the Italian Civil Code (i.e. enforceable when directors, after a cause for dissolution of the company has occurred, breach their obligations to preserve the integrity and value of the company's assets).

2. Temporary provisions on certain principles for the drafting of financial statements

Pursuant to Article 7 of the Decree, "1. In the drafting of the financial statements for the financial year current at the date of 31 December 2020, the valuation of the items on a going concern perspective as per Article 2423-bis, paragraph 1, no. 1), of the Italian Civil Code may in any case be carried out if such perspective has been established in the last financial statements closed before 23 February 2020, without prejudice to Article 106 of Decree Law no. 18 of 17 March 2020. The valuation criteria shall be specifically illustrated in the notes to the financial statements (Nota Informativa), also by reference to the results of the previous financial statements. 2. The provisions of paragraph 1 shall also apply to financial statements closed by 23 February 2020 and not yet approved".

With respect to financial statements, and without prejudice to the provisions of Article 106 of Decree Law 18/2020 (which postpones the possibility of convening the shareholders' meeting for approving the 2019 financial statements to 28 June 2020), Article 7 of the Decree provides for measures aimed at ensuring the going concern perspective with particular regard to those companies which, prior to the current crisis, were in a stable situation and had regular going concern perspectives. In this regard, the date of 23 February 2020 (i.e. the date on which the first crisis-related measures came into force) represents the relevant threshold-date.

The provision allows to evaluate the items in the 2020 financial statements using normal operating criteria, provided that the going concern perspective has already been established in the financial statements for the financial year ended 31 December 2019. The rule specifies that the valuation criteria may also be illustrated by referring to the results of the previous financial statements.

Understandably, in the absence of a similar corrective, the atypical situation caused by the COVID-19 epidemic would have required a very large number of companies to draw up the 2020 financial statements without the possibility of adopting a going concern perspective, with a significant impact on the valuation of all items in the financial statements.

3. Temporary provisions on the repayment of quotaholders/shareholder loans

Pursuant to Article 8 of the Decree "Loans made to the company from the date of entry into force of this decree until 31 December 2020 shall not be subject to articles 2467 and 2497-quinquies of the Italian Civil Code".

The provision aims at encouraging the participation of shareholders/quotaholders in increasing the funding streams to the benefit of the company, by temporarily suspending the normal mechanisms provided by Articles 2467 and 2497-quinquies of the Italian Civil Code, which would put them in a subordinate position with respect to the company's creditors. In particular, Articles 2467 and 2497-quinquies of the Italian Civil Code (the latter with reference to management and coordination activities) regulate the principle in virtue of which the repayment of quotaholders'/shareholders' loans is subordinated to the repayment of other creditors, if such loans were granted due to the company's excessive over-indebtedness or in the presence of a company's financial situation in light of which it would have been reasonable to proceed with a contribution (conferimento).

By suspending the applicability of the provisions regarding the deferment ("postergazione") of the repayment of loans to quotaholders/shareholders set forth by said Artt. 2467 and 2497-quinquies of the Italian Civil Code, the Decree's provision intends to strength the funding streams necessary to ensure the adequate, and necessary, financing of companies.

The scope of the provision at stake is limited to quotaholders/shareholders loans made prior to 31 December 2020.

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