Italy – Italian Government acts to facilitate equity injections in Italian companies

With Law Decree no. 16/7/2020, n. 76, which entered into force on 17 July 2020 (the "Simplifications Decree"), the Italian Government has introduced measures aimed at facilitating share capital increases and their implementation by the Italian companies.

A summary of the new measures is outlined below: some are "transitory", due to the Covid-19 emergency, and will remain in effect until 30 April 2021; others amend in a definitive manner the current provisions of the Italian Civil Code, also in order to comply with the limits imposed by Directive (EU) No. 2017/1132 of the European Parliament and Council of 14 June 2017.

What's new?

Temporary provisions:

Stay of the supermajority requirements

Pursuant to articles 2368, paragraph 2, and 2369, paragraphs 3 and 7, of the Civil Code, a supermajority of two thirds (2/3) of the share capital represented at the shareholders' meeting of an Italian joint stock company ("società per azioni – SPA") is required to approve certain resolutions.

For all shareholders' meetings to be held up to and including 30 April 2021 this requirement has been relaxed for certain resolutions so that obtaining the favourable vote of a simple majority of the share capital represented at the Shareholders' Meeting will be sufficient, notwithstanding any higher majority required by the company's articles of association, provided that shareholders holding at least 50% of the share capital attend the meeting.

This relaxation applies to any resolution:

Exclusion of shareholders pre-emption rights over share capital increases of Listed Companies

For all shareholders' meetings to be held up to and including 30 April 2021, a company whose shares are listed on regulated markets or traded on multilateral trading systems will be entitled to resolve an increase in its share capital excluding the pre-emption rights of existing shareholders' pre-emptions rights, by issuing new shares, provided these are issued at market value and represent not more than 20% of the pre-existing share capital, regardless of the lack of any express provision in their by-laws to that effect (which would normally be required under the terms of Article 2441, paragraph 4, second sentence, of the Civil Code, that also limits any such exclusion to only 10% of the pre-existing share capital).

The notice periods for convening a shareholders' meeting to consider and resolve on such issue are also reduced by half.

The new measures seek to remove, albeit temporarily, the obstacle represented by the supermajority required for the approval of shareholders' resolution on capital increases, with the aim of facilitating the strengthening of the capital structure of Italian joint stock companies, also taking into account the challenges deriving from the Covid-19 emergency.

Impact on shareholders' agreements

Although the aim of the provisions contained in Article 44, paragraphs 1 and 2 of the Simplifications Decree, summarised above, is to encourage the capitalization of Italian companies, there is clearly an issue as regards coordination of these temporary provisions with any shareholders' agreements currently in force, in particular whenever the relevant provisions (or some of them) have been incorporated (also) in the relevant company's articles of association.

Indeed, the new simple majority requirement is expressly applicable also where any higher majority is required by the company's articles. Nevertheless, it is unclear whether this relaxation applies also to those supermajorities introduced as a typical minority shareholder's protection, in the context of the negotiation and execution of shareholders' agreements ancillary to a specific investment agreement.

In particular, it is unclear whether and to what extent undertakings to require those supermajorities provided for a shareholders' agreement will survive, while the same supermajorities, if reflected in the company's articles of association, seem to be explicitly overruled, until 30 April 2021.

Permanent reforms: reduction of the time limit for exercising pre-emptions rights

Certain provisions of Article 2441 of the Italian Civil Code, dealing with the exercise of shareholders' pre-emption rights, have been amended by paragraph 4 of Article 44 of the Simplifications Decree.

In particular, the term for the exercise of the pre-emption right is reduced from 15 to 14 days. Moreover, it has been clarified that in the absence of publication on the company's website, the term starts from the date of registration on the competent Companies' Register.

In addition, with reference to companies whose shares are listed on regulated markets or traded on multilateral trading systems, where shareholders do not exercise their pre-emption rights to subscribe shares ("Unopted Shares"), newly inserted paragraph 3, of article 2441, of the Civil Code, provides that:

This amendment will allow rights issues to be completed more quickly.

Finally, new disclosure requirements have been imposed on directors, where a proposal for a capital increase with exclusion (or limitation) of shareholders' pre-emption rights is to be submitted to the shareholders' meeting.

In such a case, directors must prepare a special report setting out the reasons for the exclusion or limitation of the pre-emption right; that must be lodged at the company's registered office and published on the company's website on or before the deadline for convening the shareholders' meeting, unless otherwise provided by applicable special laws.

What's next?

While the opportunity for Italian companies, including listed companies, to facilitate equity injections by derogating from the provisions of the Civil Code is laudable, given the current economic context, the changes raise some issues of consistency not only as regards the provisions of shareholders' agreements currently in force - and agreed in the context of the previous legal regime - but also as regards the principles governing joint-stock companies in Italy. It will be therefore crucial to understand how a balance will be struck between the current regulatory provisions and the functioning of the capitalistic model.



Footnotes:

[1] The new wording of paragraph 3 of Article 2441 of the Italian Civil Code is as follows: "those who exercise the right of option, provided they request it at the same time, have the right of pre-emption in the subscription of shares and bonds convertible into shares that have remained unopted. If the shares are listed on regulated markets or traded on multilateral trading facilities, the company may provide that the right of pre-emption on the non-opted shares must be exercised simultaneously with the exercise of the option right, indicating the maximum number of shares subscribed".
Furthermore, paragraph 4 of Article 2441 is replaced by the following wording: "the pre-emptive right does not apply to newly issued shares which, according to the resolution to increase the share capital, must be paid up through contributions in kind. In companies with shares listed on regulated markets or traded on multilateral trading facilities, pre-emptive rights may be excluded from the articles of association, up to a limit of ten per cent of the pre-existing share capital, or, in the absence of an indication of the nominal value of the shares, up to a limit of ten per cent of the number of pre-existing shares, provided that the issue price corresponds to the market value of the shares and this is confirmed in a specific report by a statutory auditor or a statutory auditing firm. The reasons for the exclusion or limitation must be set out in a special report by the directors, filed at the registered office and published on the Company's website within the time limit for calling the shareholders' meeting, except as required by special laws".

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