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Statutory penalties for defaulting members

Statutory penalties for defaulting members

Marco Leonardi, Daniela Runggaldier

Statutory penalties may apply to shareholders if they do not comply with any of their obligations set out in the Italian companies’ by-laws. According to the Notary Council of Milan (see Ruling No. 198 of 23 November 2021), the by-laws can set out penalties (in form of fines or damages compensation) applicable to defaulting shareholders: as envisaged by scholars, such penalties may apply in case of breach of either capital contribution obligations or other obligations under the by-laws, including penalties on the majority shareholder if the third party refused to purchase the minority shareholdings in presence of a tag along clause. The Notary Council clarified that the penalty may either have pecuniary nature or involve an automatic change of the defaulting shareholder’s corporate rights and can be imposed for compensatory purposes, in addition to punitive sanctions aimed at protecting the company (e.g. the shareholding’s redemption and the exclusion of the shareholder). In that case, the company’s debt related to the amount due to the excluded shareholder could be set off against the credit from the payment of the penalty. This Ruling is an important tool available to (Italian and foreign) shareholders of Italian joint ventures to manage possible disputes in an alternative way and, at the same time, safeguard the investments.