Author: Dr. Francesca Bichiri, Research Fellow at the Department of Law, Unito
The discussion on the subject of limitation in company law must necessarily begin with an analysis of Article 2949 of the Italian Civil Code, which provides for a short period of five years for rights dependent on company relations and for liability actions brought by company creditors against directors.
The rationale for the short statute of limitations in company law is based on the need for the speed and efficiency typical of commercial transactions which are ill-suited to the ordinary ten-year statute of limitations applicable to relationships between private parties (thirty years in the Italian Civil Code of 1864 and ten years under Art. 917 of the Italian Commercial Code of 1882).
However, the scope of this provision must be clarified both subjectively and objectively.
From a subjective point of view, it is held that the restriction of the five-year limitation period to companies registered in the companies register must be interpreted in the sense of excluding the extension of Art. 2949 of the Civil Code to ordinary companies, notwithstanding their registration in the special section of the register (Court of Cassation, 16 February 2012, No. 2286).
However, from an objective point of view, while the application of this rule to liability actions brought by the company’s creditors against the directors does not give rise to any doubts, given the express legal provision to that effect, the generic reference to rights dependent on company relations poses greater problems.
The doctrine tends to define as such all those relationships that would not arise if the entity did not have a corporate character and structure or was an individual.
Until the 2003 reform, reference was made to this provision in order to identify the limitation period applicable to liability actions brought by the company for damages caused by the directors, with said period taking effect from the time of termination of office, considering the effect of the suspension for actions brought by legal persons against their directors pursuant to Art. 2941(7) of the Civil Code.
The doctrine of limitation of liability actions: legal framework
Currently, Art. 2393( 4) of the Italian Civil code expressly provides for a time limit of five years, with the most relevant interpretation issue essentially concerning the dies a quo or date of commencement of the term.
In particular, the aforementioned rule expressly provides that the term shall run from the time of termination of office.
Said date, according to some, should confirm the start of the limitation period even if the harmful effects are not yet perceivable by the injured party and would, therefore, serve the purpose of avoiding the sine die exposure of the directors to a liability for damages, regardless of the legal possibility of bringing the action (as an exception, evidently, to Art. 2935 of the Italian Civil Code).
However, the Cassation Court has not expressed itself in this sense, where, referring to the thesis of knowability, it has stated that “the prescriptive term runs from the time when the damage becomes objectively perceivable externally and namely, from when it has manifested itself in the company’s assets, it not being relevant for this purpose that the liability action is contractual in nature pursuant to Art. 2392 of the Civil Code, by virtue of the fiduciary relationship with the director (Court of Cassation, 04.12.2015, No. 24715).
Art. 2394, paragraph 2, however, provides that an action for liability may be brought by the company’s creditors if “the company’s assets are insufficient to satisfy their claims” (which obviously must be brought within five years, pursuant to Art. 2949, paragraph 2 of the Italian Civil Code).
The role of case law in the limitation of liability actions
The theory of knowability applies also in this case according to the prevailing case law, which states that “an action for relative liability may be brought by the company’s creditors … as soon as the insufficiency of the company’s assets to satisfy the claims becomes known, even without direct verification of the company’s accounts, since it is not necessary for this purpose for said knowledge to come to light from a balance sheet approved by the shareholders’ meeting”.
It is presumed that this usually coincides with the initiation of insolvency proceedings.
The burden of rebutting this iuris tantum presumption rests on the director if he or she intends to prove that the insufficiency of the company’s assets may have manifested itself at an earlier time (see, inter alia, Cass., 19/06/2019, No. 16505).
Shareholders (and third parties) who are directly harmed by the directors’ actions, provided that the harm does not result in a decrease in assets suffered by the company as a result of the directors’ actions, may also bring a liability action against the directors pursuant to Article 2395 of the Civil Code.
It is time-barred for five years “from the performance of the act that has damaged the shareholder”.
It is held that this rule must be read in conjunction with Art. 2947 of the Civil Code, so that instead of from when the unlawful conduct takes place (whether in the case of contractual or non-contractual liability), the term runs from when the harmful event for the shareholder (or third party) materialises and, if later, from when it becomes concretely perceptible to the outside world (on this point, see Court of Rome, 15/02/2016; Court of Milan, 30/04/2001).
Specific cases to which the law extends
In the past, the liability actions variously referred to herein could also be brought by the bankruptcy administrator pursuant to Art. 146 of the Bankruptcy Law and Art. 2394 bis of the Civil Code; today this figure is the liquidation administrator pursuant to Art. 255 of the Crisis Code.
Although the action brought by the administrator can be said to be unitary, the limitation period runs differently, in accordance with the timings identified above, depending on the liability asserted (Court of Bologna, 12/07/2021, No. 1662).
In keeping with the doctrine of “knowability”, the Cassation Court recently ruled on the limitation period with regard to liability actions in respect of auditors, which, as in the case of directors, may arise in respect of the company, the company’s creditors, shareholders and third parties.
On this point, it is necessary to distinguish between the breach of duties that are part of the supervisory activity exercised vis-à-vis the directors (concurrent liability) and the different and additional duties assigned to the same independent of the latter (exclusive liability).
The latter applies, for example, where there is a breach of the duty of truthfulness or of official secrecy, as well as when the law requires the board to take action but it fails to do so, as is the case of fulfilments to be met in the event of the termination of directors (Articles 2385 and 2386 of the Civil Code).
Concurrent liability, on the other hand, refers to joint and several liability for failure to fulfil a duty of supervision or control (culpa in vigilando), which does not arise due to the damage inflicted on the company by the management body, but for not having exercised the duties of control in accordance with the principles of professional diligence, which, if followed, could have prevented the occurrence of the harmful event.
These elements of liability must therefore be demonstrated by the party bringing the action, otherwise there can be no joint and several liability on the part of the auditors for the damage caused by the directors.
Art. 2407 of the Civil Code expressly provides for such a distinction and at the same time extends the applicability of the rules examined above to auditors, insofar as they are compatible.
Of particular note in this regard is a recent ruling by the Cassation Court which stated that “on the subject of the limitation period for liability actions brought by the company’s creditors, pursuant to Art. 2394 of the Italian Civil Code, the balance sheet constitutes, due to its specific function, the main source of information on the company’s situation not only for the shareholders, but
also for creditors and third parties in general, where a balance sheet showing a balanced or surplus position is the means by which reassuring and reliable information is provided.
When, notwithstanding the auditors’ report on the financial statements highlighting the inadequacy of the valuation of certain items, the shareholders’ meeting nevertheless resolves to distribute the profits to the shareholders, pursuant to Art. 2433 of the Civil Code, without any objection by the company management and control bodies, the adequacy or otherwise of said auditors’ report to allow the objective perception by creditors of the falsity of the results attested by the company’s financial statements remains subject to an appreciation of fact, reserved to the trial judge” (Cass., 5/9/2018, No. 21662).
Statute of limitations on liability actions: commencement of the limitation period
In examining the starting point of the limitation period in liability actions, it should be recalled that the dies a quo is different in internal relations between directors and auditors.
In fact, it is possible that the damage caused to the company, the shareholders and the creditors may in fact be attributable to several directors, thus giving rise to the possibility of joint and several liability, pursuant to Article 2392 of the Civil Code.
Therefore, in the event that one of the directors is required to pay in full, he or she could seek recourse against the other board members.
The same applies if an incoming director, in breach of his or her duties, fails to remedy the damage caused by the previous management and is therefore liable for the damage caused to the legitimate stakeholders.
In fact, with regard to corporate liability actions against directors, it has been observed that they may “concern both
the case in which the directors have been in office at the same time and that in which they have succeeded one another in the management of the company“.
In the latter case however, as in the more general hypothesis of joint and several liability provided for by Art. 2055 of the Civil Code
, the harmful event must be unique.
The uniqueness of the harmful event required by Art. 2055 of the Civil Code, in order that joint and several liability among the perpetrators of the unlawful act may be affirmed, must not be understood in an absolute sense, but in relation to the injured party, and therefore this form of liability must be applied even if the harmful event is derived from several actions or omissions, intentional or negligent, constituting distinct unlawful acts, provided that the individual actions or omissions have effectively contributed to the production of the damage” (Court of Cassation, 22/04/2009, No. 9619).
The joint and several liability of the directors must be joined by the liability of the statutory auditors in the case of culpa in vigilando examined above, just as the individual members of the board of statutory auditors may be jointly and severally liable for a breach of the obligations directly attributable to them (Court of Cassation, 14/12/2015, No. 25178), something that is rebuttable only if the dissenting statutory auditor has had his or her dissent noted pursuant to Art. 2404, paragraph 4 of the Italian Civil Code).
In this case, an action for recourse may be brought against the other jointly and severally liable parties only within the limits of their respective responsibilities, “expressly requesting that this be verified based on the internal distribution of the burden of compensation with the jointly liable parties”, considering as irrelevant the unequal causal relevance of the conduct in the relations between the injured party and the damaged party (Court of Cassation, 20/12/2018, No. 32930).
Thus, in the context of an action for recourse, the limitation period runs from when the right can be asserted pursuant to Art. 2935 of the Civil Code and, therefore, according to established case law, from when payment is made, since only in this circumstance does the right to bring an action against the joint debtors arise.