Green-light to the reform for enterprises in crisis: spotlight on the articles of association and organizational arrangement of Italian-law limited liability companies (S.r.l.)

Some of the measures set forth in Legislative Decree no. 14 of 12 January 2019 and published in the Official Gazette on the following 14 February entered into force on 16 March 2019, implementing delegating law no. 155 of 19 October 2017, and laying down the new “Code of corporate crises and insolvency” (the “Code“).

Appointment of control bodies in limited liability companies

Net of a series of implementing provisions to be enacted – and pending the entry into force of most reforms, 18 months from publication in the Official Gazette (and therefore on 14 August 2020) – in accordance with Article 389 of the Code, the entry into force, inter alia, of Article 379 is brought forward. This article, which amends Article 2477 of the Italian Civil Code, governs the “appointment of the control bodies of limited liability companies.”

Effective from 16 March 2019, the appointment of a control body or auditor is mandatory if a limited liability company:

• is obligated to prepare consolidated financial statements;
• controls a company which is obligated to carry out a statutory audit of the accounts;
• has exceeded at least one of the following limits for two consecutive financial years:

1. total assets of € 2 million (as opposed to the previous € 4,400,000),
2. sales revenues of 2 million euro (as opposed to the previous € 8,800,000),

• average number of employees in the relevant period: 10 employees (as opposed to the previous 50 employees)

The above mandatory appointment ceases if none of the above limits is exceeded for three consecutive financial years.

In addition to any other stakeholder, the Registrar of Companies may report infringement of the above so that the control body is appointed ex-officio.

It is interesting to note that, as estimated by the Bank of Italy, the limited liability companies that might be concerned by the aforementioned obligation are about 140,000.

Therefore, the limited liability companies the articles of association of which:

• make a generic reference to the “cases/criteria of the law” providing for the mandatory appointment of a control body or auditor, or a generic reference to the parameters pursuant to Article 2477 of the Italian Civil Code shall not be obliged to amend them; whereas
• make express reference to the parameters pursuant to Article 2435 of the Italian Civil Code, which currently are no longer cross-referenced, shall be obligated to amend them.

More in detail, in terms of organizational arrangement (and therefore, in the articles of association) it is possible to select one of the following options:

• appointment of a sole statutory auditor or board of statutory auditors (vested with the authority to oversee compliance with the law) and of an independent auditor (in charge of the accounting control)
• appointment only of a sole statutory auditor or board of statutory auditors (vested with the authority to oversee compliance with the law) and not of an independent auditor; in this case, the articles of association shall assign to the statutory auditor(s) the responsibility of auditing the accounts;
• appointment only of an independent auditor (in charge of the accounting control) and not of a statutory auditor or board of statutory auditors; in this case, the shareholders shall oversee compliance with the law.

It is proper to note that the rationale of the whole reform, and therefore, of the Code, lies in (i) the strengthening of the instruments to anticipate a crisis, on the one hand, (ii) the preservation of the going concern (business continuity, as required transnationally) and (iii) debt write-off together with management discontinuity, on the other hand.

Conclusions

This reform, which increases the awareness and “accountability” of entrepreneurs (a concept of European origin, just like the GDPR and the personal data protection reform), must certainly be welcomed. However, it is necessary to verify in the future if the new “limit of 10 employees” will foster elusive behaviours, and therefore the parcelization of companies, which in Italy already are of a small size.