With Law Decree no. 23 of 8 April 2020 (the “Decree” or “Liquidity Decree”), which entered into force on 9 April 2020, the Italian Government issued new provisions for the containment of the COVID-19 emergency, which envisage further measures in favour of corporations (SpAs and Srls), to be added to those provided in Law Decree no. 18 of 17 March 2020 (so-called “Cure Italy”).

Provisions on the reduction of the share capital due to losses

Art. 6 of the Liquidity Decree has introduced provisions, expressly defined as temporary, on the reduction of the share capital due to losses, which shall apply, without prejudice to any changes made by Parliament upon the conversion into law, until 31 December 2020.

From the date of entry into force of the Decree and until 31 December 2020, the provisions under articles 2446, paragraphs 2 and 3, 2447, 2482-bis, paragraphs. 4, 5 and 6, and 2482-ter of the Italian Civil Code are suspended.

The suspension applies (i) in case of reduction of the share capital by over one third as a result of losses, provided such losses have not decreased to less than one third within the subsequent financial year and (ii) in case the reduction of the share capital below one third entails the reduction of the same below the legal threshold.

Based on rules generally applicable, temporarily suspended by the Decree, to avoid dissolution, in the above cases companies would be required to resolve upon the reduction of the share capital and at the same time upon the increase of the same to an amount above the legal threshold or be forced to be wound up.

Instead, the Decree allows corporations to carry forward the losses, cover them based on a decision of the shareholders, transform or liquidate the company, in this case, on a voluntary basis.

Accordingly, art. 6 of the Decree further establishes the suspension of the applicability of art. 2484, no. 4 of the Italian Civil Code (dissolution of corporation in case of reduction of the share capital below the legal threshold) and of art. 2545-duodecies of the Italian Civil Code (dissolution of cooperative companies in case of reduction of the share capital below the legal threshold and due to loss of the share capital): as a result, the automatic applicability of the reasons for dissolution is suspended.

Therefore, as a result of this measure, the loss of the share capital no longer forces directors to wind up companies which would in themselves have been able to stay on the market, while at the same time the management body is protected from the risks of liability due to non precautionary management pursuant to art. 2486 of the Italian Civil Code in case of liquidation.

On the other hand, no derogations or suspensions are envisaged with respect to reporting obligations for joint stock companies pursuant to Directive 1132/2017.

These provisions, which are in addition to those previously adopted by means of the Cure Italy Decree, thus aim to help companies that lack the means to refinance themselves or cannot count on recapitalisation by shareholder to cover losses, not only after the state of emergency (currently set to end on 31 July 2020) but until the closing date of the last financial year for most companies (31 December 2020). In this way, the legal obligations are postponed to the following financial year.

Provisions on principles for the preparation of the financial statements

With respect to the drawing up of the financial statements, art. 7 of the Liquidity Decree has introduced an important change to prevent the effects of the COVID-19 emergency from having a negative impact on companies whose business continuity prospects were fine before the crisis.

When drafting their financial statements, all companies will have to evaluate the relevant items based on a prudent approach and with a view to corporate continuity pursuant to art. 2423-bis, para. 1, taking into due account the situation existing as at the entry into force of the first emergency measures (i.e., 23 February 2020).

In this way, companies which presented no continuity issues to that date, will be able to ensure their financials portray the company’s actual performance, and not a picture distorted by the emergency. Similarly, financials will also provide a true picture of companies which already lacked corporate continuity requirements before 23 February 2020, regardless of the measures adopted to face the emergency.

The measure also applies to financial statements closed within 23 February 2020 yet to be approved.

Apart from appearing in the items in the financial statements, the evaluation criterion will also have to be explained in detail in the information notice, also by making reference to the figures recorded on the previous financial statements.

The provision under art. 106 of the Cure Italy Decree remains unchanged.

Provisions on corporate financing

Art. 8 of the Liquidity Decree further provides, from the entry into force of the Decree and until 31 December 2020, the suspension of the subordination mechanism for the reimbursement of loans to the company by shareholders or the entity which exercises management and control activities pursuant to articles 2467 and 2497-quinquies of the Italian Civil Code.

The aim of this provision is to motivate the latter to refinance the company without bearing the effects of subordination in respect of other creditors. The subordination derogation is applicable exclusively to loans issued no later than 31 December 2020.