The russian roulette clause under review in jurisprudence

In a recent judgment of 13th June 2017, published on 19th October 2017, the Court of Rome expressed its opinion for the first time – since no decision had been registered on the point until then and even afterwards – on the merits of the russian roulette clause.

It is a clause whose settlement is exclusively left to the will of the general partners. The ratio of this clause is to prevent deadlock at the company meeting, because it is not uncommon that the majority principle (which governs the decisions of the shareholders’ meeting) finds an obstacle in all those situations in which trigged event occurs, i.e. a conflict that cannot otherwise be resolved.

The russian roulette clause gives one of the partner (or both if expressly provided for) the right to make an offer for the purchase of the other partner’s shareholdings, also communicating the purchase price; the oblate partner, on the other hand, is placed before the alternative between accepting the offer and selling at the price determined by the principal or buying the former’s shareholding at the price proposed by him.

The Court of Rome, in the judgment in question, examined the validity and merits of this clause which, in the opinion of the plaintiffs, had to be considered void mainly because it left the quantitative assessment of the shareholding to the discretion of only one of the parties.

The judgment, therefore, analyses the clause in several respects.
First of all, the clause is considered worthy of protection pursuant article 1322, paragraph 2, of the Italian Civil Code due to the fact that it is aimed at overcoming the incapacity of the company meeting (this situation could lead to the paralysis of the company). Through the activation of the clause, therefore, the partner demonstrates the will to put an end to situations of deliberative impossibility – suitable to determine the dissolution of the company’s structure – through the reallocation of the shareholdings.

The Court also expressed its opinion on the legitimacy of the clause, arguing that the unilateral determination of the price (the partner in a certain sense operates in the “dark” since he cannot know the choice of the other one) is balanced by the “risk” of losing, at that same price, his own shareholding in the company.
In the same way, the judgment in question shows that the clause cannot be considered void even if the sale price is set lower than what would be received by the shareholder in the event of withdrawal. Jurisprudence has repeatedly expressed itself on this aspect with reference to the drag along clause which implies that, if one of the two partners (usually a majority shareholder) intends to sell its shareholding, the other partners will also be obliged to sell theirs.
However, the function of drag along is different from that of russian roulette. While the former allows the shareholder to facilitate the sale where the possible buyer does not intend to make the investment except by purchasing the entire share capital, the rationale of the latter is precisely to overcome the empasse of the shareholders’ meeting.

A further profile was the possible contrast of the clause with the prohibition of the agreement pursuant of article 2265 Code Civile. The aim of this agreement is the total exclusion of the shareholder from participation in the business risk and/or profits. This hypothesis is not the same of the russian roulette clause in which the party who is given the right to take the initiative is not free to do that, but this right is subject to the occurrence of one of the events indicated in the clause.

With regard to the russian roulette clause, the Milan Notary’s Board also recently intervened, with a statement no. 181 of 2019. They confirmed the approach followed by the Court of Rome with the exception of the aspect concerning the determination of the value of the shareholding.
In essence, the Board of Notaries held that the option expressed by the clause could be considered validly exercised only where the price set by the shareholder is compatible with the principle of “fair value” of the shareholding. The value cannot be lower than that which would be attributed to the shareholder in the event of exercising the right to withdraw from the company.

In conclusion, therefore, it can be stated that the ratio of the Russian roulette clause is to resolve situations of decisional stalemate through a relocation of shareholdings and for this reason it must be considered worthy of protection in our legal system.