Voluntary liquidation: when a distribution of retainers to the company's shareholders can be performed
Following the company law reform, the approach towards distribution of retainers pending voluntary liquidation has substantially changed with respect to corporations. Article 2491 of the Italian Civil Code states that the liquidator(s) of the company are entitled to distribute retainers to the shareholders if the financial statements show that such distribution would not jeopardize the availability of adequate amounts for the satisfaction of the company's creditors. When a distribution of retainers can be performed? The doctrine has expressed different opinions. What is the preferable interpretation?
Prior to the Italian company law reform introduced by Legislative Decree No. 6/2003, any distribution of retainers to the company's shareholders pending voluntary liquidation was not admitted, unless sufficient funds for the satisfaction of the company's creditors had been previously reserved by the liquidator(s).
This principle was applied both to corporations (società di capitali) as well as to partnerships (società di persone) pursuant to Articles 2280 and 2452 of the Italian Civil Code ("ICC"). The rationale behind this principle was to avoid any possible confusion between the assets of the company and its shareholders' assets caused by the distribution of retainers during the course of the voluntary liquidation proceeding. Furthermore this restriction served as a general protection to the company's creditors' interests.
Following the company law reform of 2003, the approach towards distribution of retainers pending voluntary liquidation has substantially changed with respect to corporations; in fact, Article 2491 of the ICC states that the liquidator(s) of the company are entitled to distribute retainers to the shareholders if the financial statements show that such distribution would not jeopardize the availability of adequate amounts ("somme idonee") for the satisfaction of the company's creditors.
The legislator has overcome the previous and stricter discipline with the intention to move towards a more favourable, flexible and efficient approach to the process of voluntary liquidation. As a result of this renovated legal framework and of the exception introduced under Article 2491 section 2 of the ICC, the liquidator(s) shall conduct a prospective evaluation on the company's cash flow and on the expected development of the liquidation process prior to proceeding with the distribution of retainers to the company's shareholder. Said assessment is crucial and should be based on financial data which are as recent as possible - in this respect it is worth noting that, lacking a direct law provision with regard to the reference date of the financial statements that should be considered by the liquidator(s), the preferred solution is to refer to the discipline of the distribution of retainers on dividends to the shareholders and therefore to look at financial statements that are not older than 4 months. This interpretation takes into consideration the dynamic approach to voluntary liquidation as well as the interest of the shareholders to disinvest.
When performing their analysis of the future development of the liquidation process, the liquidator(s) should consider the expected timeframe for the collection of the company's credits as well as the date on which the debts of the company will become due.
The question concerning the moment in time when a distribution of retainers can be performed has been debated; in fact, some authors have argued that the decision to distribute retainers should be based on the results shown by the liquidation financial statements ("bilanci di liquidazione") prepared by the liquidator(s) and approved by the shareholders pursuant to Article 2490 of the ICC, whereas, on the contrary, others have argued that an interim balance sheet would suffice.
Considering the more flexible approach to the voluntary liquidation that has been shown after the reform occurred in 2003, the preferable interpretation is the latter - this is because otherwise the power to distribute a retainer to the company's shareholders would be unreasonably limited in terms of time and the liquidator(s) would be bound to wait at least the approval of the first liquidation financial statements only for starting the evaluation of a distribution to the shareholders. This would conflict with the new model of voluntary liquidation and, moreover, would also pose a constraint to the spectrum of the liquidators' powers. In fact the power to distribute a retainer to the company's shareholders is reserved to the liquidator(s) who, pursuant to Article 2489 of the ICC, can perform any act they diligently deem necessary for the liquidation of the company and, as a consequence, take personal and joint liability for any damage caused to the creditors as a consequence of the distribution of a retainer to the shareholders (Article 2491, section 3, ICC).
When considering the possibility of a distribution, the liquidator(s), moreover, may proceed with a distribution in kind unless expressly excluded by the shareholders or within the company's articles of association - this type of distribution is admitted even though particular attention should be recommended to the liquidator(s) with respect to the methods adopted for the evaluation of the assets.
In conclusion it is worth mentioning that, albeit not being subject to shareholders' prior approval, the liquidator(s)' possibility to distribute retainers to the shareholders can be (completely or partially) limited by the shareholders either by way of express exclusion/limitation by means of the resolution establishing the criteria for the liquidation and the appointment of the liquidator(s) pursuant to Article 2487 of the ICC, or by way of express exclusion in the company's articles of association.