FROM OUR FOREIGN CORRESPONDENTS

Among the changes made to Italy’s commercial law during 2001, amendments to corporation rules can easily be deemed the most significant. These major amendments were introduced by means of a statute (legge 3 ottobre 2001, n. 366 - Delega al Governo per la riforma del diritto societario, Gazzetta Ufficiale n. 234 del 08.10.2001, hereinafter the “Statute”) through which the government was authorized to adopt one or more legislative decrees to amend certain provisions regarding corporations, corporate crime, and other supplementary procedural provisions for certain pending trials. The Statute also provides that, within one year of the effective date of each legislative decree, the government may adopt other additional provisions needed to implement the provisions of the Statute.

The changes involve limited liability companies (Società a responsabilità limitata, Article 3 of the Statute) as well corporations (Società per azioni, Article 4 of the Statute). The principal features of the amendments can be summarized as follows. Regarding limited liability companies, changes include simplification of procedures of incorporation and of estimating contributions by shareholders; broadening autonomy in the contents of company by-laws, especially as to the structure of the company, the decision-making process, and suits brought by shareholders against directors and officers; and increasing autonomy of companies to set rules regarding transfers of interests and the right to withdraw. Clauses that make interests in a company non-transferable without providing for a right to withdraw will be considered void. Changes relating to corporations are designed to achieve several goals. First, a broader autonomy is envisaged in areas covered in by-laws. Assuring compliance with rules governing control over company management is also targeted and this is differentiated from control over auditing entrusted to third parties. Granting the right of derivative actions when certain requirements are met, and setting adequate quorum rules for meetings in order to protect minority shareholders are also included in this package. Second, as a general rule, corporations must seek to achieve efficiency and fairness in management. Third are detailed rules as to the incorporation procedure, and fourth, incorporation must also be permissible even when there is only one shareholder. In such cases, however, adequate protection must be provided for creditors of this kind of corporation.

Corporate Crime

Amendments to corporate crime provisions include substantial changes of existing crimes and the introduction of new types of crimes. It should be noted that as to corporate crimes, on April 11, 2002, the Italian government adopted a legislative decree (No. 61) that implements the above mentioned Statute. Amendments concern crimes related to false statements, wrongful acts by directors, wrongful acts by omission, and certain other kinds of offenses.

In particular, with regard to crimes related to false statements, the most significant amendments deal with the following:

• False accounting and false statements in reports or other notices required by law;
• False statements in prospecti;
• False statements in reports and other notices of the auditing firm;
• Document shredding.

• Unlawful restitution of contributions;
• Unlawful allocation of profits and reserves;
• Unlawful transactions regarding shares or equity of the parent company;
• Transactions damaging creditors.

• Failure to make reports, notices or deposits;
• Failure to hold a meeting.

• Manipulation of a company’s assets;
• Undue allocation of assets by the officer in charge of the winding up of a company;
• Conversion of assets;
• Conversion of assets as a result of transfers or promises of benefits;
• Unlawful influence of the meetings of the company.
• Manipulation of information.

Amendments to the provisions regarding the offence of false accounting are the most important. First, founders and promoters are no longer included among the individuals who may be held liable for such an offense. Second, it must be shown that the author intentionally acted to mislead shareholders or third parties with the intent of profiting himself or others. Third, the misleading information provided (or omitted information) must concern material facts, not mere evaluations. Fourth, the misrepresentation or failure to inform must be substantial: statements or omissions must mislead as to the real financial condition of the company. Fifth, only shareholders or the “public” are relevant under the new provisions; false statements to other bodies of the corporation, to identified entities or individuals or to governmental agencies therefore do not fall under the new provisions. Finally, the misrepresentation must be capable of misleading the above mentioned protected individuals. It must be noted that while previously the regime was much tougher in terms of punishment (incarceration - rectius “reclusione”- from one to five years and a fine), the new Law now provides for incarceration - rectius “arresto”- of only up to eighteen months.

As to new offenses, “conversion of assets”, although related to what was under the previous regime broadly referred to as “conflitto di interessi”, is now considered a new kind of crime. The main differences between the new and the old regimes are that, first, directors, managing directors and individuals that wind up the company may be held liable, while previously only directors could be charged. Second, the relevant conduct relates to acts of transferring or concurring in the adoption of resolutions aimed at transferring the company’s assets. It must be noted that the same rule applies when the assets are held by the company under a bailment agreement. Third, the transfer must cause damage to the company. Fourth, the wrongdoer must have specific intent to cause damage to the company and he must possess the intent to incur a benefit for himself or third parties.

While these radical amendments in the structure of limited liability companies and corporations greatly improve a set of rules that were rather inadequate and outdated, the effect of the changes in the corporate crime rules is to significantly reduce penalties for certain wrongdoings. The effects of decreased penalties for such offences on white collar crime in Italy remain to be seen.

June 7, 2002

Francesco Mazzotta is an associate at Zini & Associates in New York City, and a member of the New York and Italian Bars

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