Registered merger transaction may not be challenged for procedural irregularity
| Insights
All merger transactions under the Italian law shall follow the procedure set out in the Italian Civil Code. The final step of the procedure is the registration of the merger deed in the companies register, and according to article 2504 quater of the Italian Civil Code (I.C.C.), such a registration blocks challenges and disputes over the validity of the deed.
In its recent decision No. 5602/2020 on this topic, the Italian Supreme Court reiterated (with reference to its previous jurisprudence n. 28245/2005), that as a result of the registration, any judicial remedy for “legal defects directly pertaining to the merger deed” and also for “legal defects of the merger procedure and the registration procedure”, shall be “absolutely precluded”. Furthermore, in order to explain the extent to which remedies shall be precluded, the Supreme Court reiterated (with reference to its previous jurisprudence n. 8864/2012) that even “juridical non-existence of resolutions made by board members or shareholders, preliminary to the merger” are to be regarded as legal defects of the merger procedure which become irrelevant after the registration. The rationale of this strict interpretation is that the underlying interest of article 2504 quater I.C.C. is to secure “legal certainty of transactions and reasonable expectations of third parties”.
In fact, the final registration to the companies register (from which the preclusion arises) represents just the final step of a much more complex procedure in which a specific judicial remedy is made available: creditors’ ability to challenge the merger, pursuant to article 2503 I.C.C.. When creditors do not initiate the remedy or when their pleadings are dismissed, the merger procedure can move forward to the final stage of the registration to the companies register. Once this last stage is complete, legal certainty of transactions will prevail on legal defects, consequently making any remedy (to undo or invalidate the merger) unavailable. The only exception is claim for damages, which remains available after registration.
Decision No. 5602/2020 is the most recent one reasserting the above interpretation. The specific case concerned a cross-border merger by absorption (started during the year 2015) of an Italian company (the parent company) with and into their fully owned English subsidiary. Following the prescribed publication of the merger (Public Journal of the Republic of Italy, dated April 23rd 2015), a third party, asserting to be a creditor of the target company, challenged the merger pursuant to article 2503 I.C.C.. Aforementioned third party denounced a “serious failure to fulfill the duty of disclosure” of the target company (allegation available in detail in the attached decision). However, all pleadings were dismissed in both the first and second instance. Furthermore, during the first instance, the target company demanded (and obtained) a preliminary injunction by the Judge, authorizing the company not to suspend the merger procedure during the judicial proceeding. As a result, while the trial was still ongoing, the parties to the merger signed the deed and registered it with the Italian companies register. Finally, the creditor appealed the judgement to the Supreme Court, which affirmed previous interpretations that the disclosure requirements had been duly fulfilled by the target. Therefore, the registration could be deemed as reached “following a procedure free from external and traceable irregularities”. This means that legal defects and other irregularities pertaining to acts or documents internal to the merger procedure are to be considered as irrelevant to the validity of the deed of merger, pursuant to article 2504 quater I.C.C.
Giulia Tufano