The quota-holder of a limited liability company (“s.r.l.”) can effectively exercise its right of option on the capital increase by offsetting the relevant debt with his eventual credit towards the company which is subordinated pursuant to art. 2467 of the

The Business Division of the Court of Rome, addressing – from what we can gather, for the first time – a topic little explored also among the Scholars, recently excluded that the quota-holder of a limited liability company (“s.r.l.”) can effectively exercise its right of option on the capital increase by offsetting the debt  due to the contribution with his eventual credit towards the company which is subordinated pursuant to art. 2467 of the Italian civil code

The facts:

• the meeting of a limited liability company (“s.r.l.”) approves a capital increase;
• a quota-holder exercise its right of option on the capital increase by declaring his will to offset the relevant debt with his credit towards the company arising from a loan that he previously granted the company;
• the director of the company refuses to proceed with the release of the quota subscribed, by registering with the Register of Companies the decision to increase the capital without taking into account the subscription made by the quota-holder in question;
• the quota-holder in question appeal pursuant to art. 700 of the Italian code of civil procedure, with an interim proceedings, claiming for an order of proceeding with the execution to the capital increase decision;
• the Court order the company to execute the capital increase decision;
• the company appeals against the interim order, submitting to the Panel of Judges the question referred to in the title of this note, i.e. if the quota-holder of the “s.r.l.” – by exercising its right of option on the capital increase – can effectively offset the debit by conferment with his eventual credit which is subordinated pursuant to art. 2467 of the Italian civil code.

In responding to the question, the Business Division of the Court of Rome initially raises a more general problem, asking whether the pecuniary debt assumed at the time of conferment can be offset by a pecuniary credit (of the same quota-holder) towards the company.

To this preliminary question, the Business Division of the Court of Rome answer affirmatively, referring to an orientation already established in the jurisprudence of the Supreme Court (see Cass. 19 March 2009, no. 6711, Cass. 24 April 1998, no. 4236 and Cass. 5 February 1996, no. 936, that overruled Cass. 10 December 1992, no. 13095). Indeed, the Judges remind that the mentioned principle acts “generally speaking”, without the need that the decision to increase the capital should expressively consent the offset. Nevertheless, it is not excluded that, in deliberating the increase, the meeting might prohibit to offset the quota-holder credit and his debt for the exercise of the right of option, for example in cases where the company has an immediate need to obtain liquid resources. In short: it is an opt-out system.

That said, the Court address the specific matter: given that – as the Supreme Court has repeatedly affirmed – in the capital increase transaction the offset is allowed (except, indeed, if the meeting has forbidden it), can the offset effectively operate even if the counter-credit of the quota-holder is legally subordinated (as resulting from a quota-holder loan granted in one of the situations referred to in paragraph 2 of article 2467 of the Italian civil code)?

The answer is “no”: according to the Court of Rome “the principle that allows the offset between the quota-holder’s credit, concerning the repayment of a previous loan, and his debt, concerning the amount of the capital increase, finds its limitation in the hypothesis in which the loans made by the quota-holders are subject to the subordination envisaged by art. 2467 of the Italian civil code”.

Here is the reasoning:

‐ pursuant to art. 1243, paragraph 1, of the Italian civil code, the credit can be legally offset only if it is due;

‐ the credit which is subordinated pursuant to art. 2467 of the Italian civil code is not due, as “the satisfaction of the other creditors is a condition precedent to the right to reimbursement; in particular, that may produce the effect of extending the expiration of the loan until the moment of the fulfillment of the condition precedent, thus preventing the loan from being due, considering it suspended until the satisfaction of the other creditors”;

‐ therefore, the credit which is subordinated pursuant to art. 2467 of the Italian civil code cannot be offset.

The Court of Rome, Specialist Business Division, excludes the offset on the basis of a private law reasoning, i.e. because the legal offset is prevented by the lack of the requisite of the loan being due.

It could be objected, however, that there is room for a voluntary offset, pursuant to art. 1252 of the Italian civil code; in other words, the parties could show their will to make the offset work regardless of whether the credit is due or not. But, according to the Court, this is a path that cannot be taken in the context that concerns us: this is because the directors of the company are responsible for the failure to comply with the obligations inherent to the preservation of the integrity of social assets, and could not refrain from "objecting that the loan is subordinated". Therefore, not only it is impossible a legal offset, but it is also forbidden to "preach the (voluntary) offset of the debt arising from the subscription of the capital increase with the credit arising from the financing".

It remains only to add that, in this case, the company was still unsuccessful: the principle that it invoked (i.e., that of non-offset), as we have said, was correct, but could not be applied in this case, because the company did not give evidence of the situation described in art. 2467, paragraph 2, of the Italian civil code.

It is now possible to make a final remark, briefly, to frame the position taken by the Court of Rome in the context of the opinions already formulated on the issue.

Some Scholars and a part of the notarial literature, in fact, have observed that it would not make sense to consider ineffective the offset of the debt arising from the conferment with the legally subordinated credit, as with the offset we would have eliminated a “liability” item (that relating to the debt of the company for the quota-holder loan received), with an increase in equity, comparable to that which would be obtained if the contribution was released with cash (or with other entities susceptible of conferment).

The observation is insidious, but probably surmountable, since the “liability” item related to the debt for the quota-holders' loan actually refers – as acutely pointed out by other Scholars – to a debt which, due to the subordination, is to be considered only potential, and, as such, cannot be taken into account as part of the capital increase transaction. In this perspective, the increase in capital would not correspond to an effective increase in equity.

In other words, at the end of the transaction of capital increase, this must really be higher than the pre-existing one; but this would not happen if the subordinated credits were to be offset, as they are substantially already to be considered as capital, being subordinated.

In the light of the foregoing, the position of the Court of Rome, Specialist Business Division, appears to be worthy of being followed: allowing the quota-holder to exercise his right of option by offsetting his subordinated credits (which, although only in substance, are already as capital) could preclude the company from seeing further actual contributions in its favor, in contradiction with the purpose itself and the social interests underlying the capital increase transaction.

This article is for information purposes only and is not intended as a professional opinion. 

For further information, please contact Daniele Griffini or Egidio Greco.