Under Italian law a shareholder of a joint stock company can exercise the right to withdraw in the cases provided for by law (for the list of cases see art. 2437 Civil Code for shareholders of a company limited by shares (S.p.a.), art. 2473 Civil Code for quotaholders of a limited liability company ( S.r.l.) and art. 2497-quater for shareholders of companies subject to the direction and coordination of other companies).

When a shareholder exercises his right to withdraw from the company, he is entitled by law to obtain payment for his holdings in respect of which he is exercising it (art. 2473-ter Civil Code for S.p.a. and art. 2473 Civil Code for S.r.l.).

The value of the holding is established by the directors, having obtained the opinion of the board, of statutory auditors as well as the legal auditor of accounts and is established taking account:

  1. a) of the company’s equity;
  2. b) of its income producing prospects; as well as
  3. c) any market value it may have.

The company’s bylaws may also provide for other criteria to establish the value of the holding, indicating the asset and liability items that may be rectified with respect to the figures shown on the financial statements (together with the rectification criteria), as well as other possible elements, capable of being valued, to be taken into consideration.

Clauses in the bylaws which establish payment for the holding in an amount equal only to its nominal value or taking into consideration book value only are considered unlawful.

In practice, instead, clauses that establish the value of goodwill, measured according to mathematical calculations in relation to the profitability in previous financial years are held lawful.  This criterion is, in fact, in line with the condition of the assets organised in the company, the overall value of which is not the sum of the static value of the individual assets but is inevitably influenced by business continuity prospects (so-called going concern) (see Italian Court of Cassation, Civil Division, 15 July 2014, no. 16168).

For listed companies, the value of the shares is normally established by referring exclusively to the arithmetic average of closing prices in the six months preceding publication of the notice calling the shareholders’ meeting, the resolutions of which entitle the shareholder to withdraw.

In these types of company, the bylaws may provide that the value shall be established also according to criteria a), b), c) set forth above, but, in any event, such value cannot be lower than the value that would be due applying the criterion of the arithmetic average of the last closing prices described.

In the event of disagreement among the shareholders as to the value of the holding, the law provides as a remedy, that the value can be established through a Sworn Appraisal of an Expert, appointed by the Specialised Division of the Business Court, by application of the withdrawing shareholder.

In this case the Expert will draw up the appraisal according to the criteria established by law or by the bylaws, within the term fixed by the judge.

The Expert appointed to draw up the appraisal is true Auxiliary of the judge (according to art 68 of the Italian Code of Civil Procedure) and, by express provision of law, he draws up his Report in the capacity of arbitrator (see art 1349 of the Civil Code).

This means that he operates as a party appointed to establish the performance of a contract according to a valuation criterion inspired by contractual equity, which, in this case, performs a function of balancing out the economic interests in play.

Given that he is classified as an arbitrator, consequently there are few remedies to challenge his Report on the value of the holdings: his Report can in fact be challenged before the Court only if it is “manifestly inequitable or wrong”.

Payment for the holding in respect of which the withdrawal has been exercised must be made within the inderogable term of 180 days from the date upon which the declaration of the withdrawal reached the company.

Normally the payment will be made through purchase of the holding of the withdrawing shareholder by the other shareholders in proportion to their holdings, or by a third party identified by mutual agreement among the shareholders.

** Lowenstein Sandler LLP thanks Fiorella F. Alvino and Andrea Alberto Belloli of Nunziante Magrone for their contributions to this blog.