Italy: Supreme Court of Cassation Addresses Required Evidence in Corporate Shareholder Claims

(May 12, 2020) On February 19, 2020, the Italian Supreme Court of Cassation (SCC) clarified the evidence a corporate shareholder must present to prove a claim for repayment from the corporation. (Decision No. 4261 of February 19, 2020 (Decision).)

Background of the Case

The SCC reviewed a case submitted by the Appellate Court of Lecce, which in 2015 ordered a company defendant to reimburse the plaintiff shareholder 86,700 euros (about US$93,800) for payments made by the plaintiff to the company. 36,200 euros (about US$39,140) of that sum was reflected in the company’s ledger as constituting risk capital while the rest constituted merely reimbursable loans (finanziamenti ripetibili) not connected to any specific purpose. (Decision, considerations of fact § 1, para. 1.)

The SCC considered whether the plaintiff was required to prove that the payments made were not risk capital through evaluation of the technical terms used for annotations in the company’s ledger and of the practical goals and underlying interests of the parties when the contributions were made. (Considerations of law § 2.)

Reasoning of the Court

The SCC took notice of the growing practice among companies to make up for financial shortages through recourse to a variety of of financial instruments, to reclassifying the shareholders’ contributions in their ledger, and to distinguish between “disbursements of credit capital” and “disbursements of risk capital.” (Considerations of law § 4, para. 1.)

The SCC reasoned that “disbursements of credit capital” are usually linked to a loan negotiation scheme in which the shareholder assumes the role of creditor of the company, while the company registers the contribution among its debts and is required to repay the loan upon maturity. In contrast, “disbursements of risk capital” originate an “atypical deed of assignment” (negozio atipico di conferimento) that is intended to increase the social capital, giving the company the financial means to perform future capital increase operations that create a right of reimbursement exclusively upon its liquidation and only with respect to the limits of residual assets. (Considerations of law § 4, para. 2.)

The SCC said it was necessary for a court to ascertain the real intention of the parties and determine the parties’ will during the negotiations with respect to the type of shareholder payments. (Considerations of law § 5.) The fact that such payments were classified as debt in the company’s financial statements is useful but insufficient in determining the nature of the financial transaction, given the relative inaccuracy that often characterizes accounting records. (Considerations of law § 6, para. 1.)

Holding of the Court 

The SCC held that the appellate court did not correctly investigate whether in this case the payments actually constituted a loan in favor of the company rather than a capital contribution. (Considerations of law § 7, para. 2.)

The SCC ruled that with respect to shareholder disbursements of credit capital, a shareholder is a company’s creditor and the company must repay the debt, plus interest if any, on the debt’s date of expiration. In contrast, shareholder contributions of risk capital excludes the shareholders’ right of reimbursement, except in the event of a company’s liquidation and the disbursement of residual assets. (Considerations of law § 7, para. 2.)

Finally, the SCC decided that shareholders’ contributions as recorded in a company’s ledger, without more, do not constitute sufficient evidence to demonstrate the shareholders’ right to be reimbursed. To determine whether the recording of a shareholder’s contribution on a company’s balance sheet gives the shareholder the right to be reimbursed, a court must evaluate the nature of the shareholder’s financial commitment to the company. The SCC remanded the case to the lower court to allow the shareholders to provide further evidence supporting their claim. (Holding.)