The “sterilisation” of losses: the interpretation provided by the Triveneto Notary Committee

After the spread of the Covid-19 pandemic, the Italian Government launched several measures aimed at supporting companies in crisis. These measures include the provisions of Article 6 of Decree-Law no. 23/2020, converted with amendments by Law no. 40 of 5 June 2020 and subsequently amended by Article 1, paragraph 266, of the 2021 Budget Law.

The aforementioned article modified the applicability of the civil law rules concerning the obligation to reduce capital in the event of significant losses. Indeed, Articles 2446 and 2447 of the Italian Civil Code, in the case of joint-stock companies, and Articles 2482 bis and ter of the Italian Civil Code, in the case of limited liability companies, impose on shareholders the obligation to reduce share capital in the following cases:

1) the loss of more than 1/3 of the capital and consequently the reduction of the latter below the established legal minimum;

2) the persistence for two consecutive financial years of a loss of more than 1/3 of the capital.

The measure introduced by the Government with Decree-Law no. 23/2020 allows the shareholders of a company not to comply with the obligation to reduce share capital, which is imposed on them by the aforementioned civil law provisions, in the event that the conditions set out in points 1 and 2 above are caused by a loss generated in the financial year affected by the crisis caused by the covid-19.

The exemption introduced by the emergency measure, however, does not provide for a permanent “sterilisation” of such losses. On the contrary, it provides that losses incurred in 2020 may lead to a reduction of the share capital, as provided for in the above-mentioned rules, in 2025.

Some critical aspects of the new rule described therein are analysed below, as stated by the Triveneto Notary Committee, In fact, the latter has intervened on this point by identifying principles aimed at interpreting the emergency measure.

First of all, it should be noted that the 2021 Budget Law has amended Article 6 of Decree-Law no. 23/2020 by eliminating the reference to “capital losses” and introducing the reference to “losses arising during the year”. Therefore, the loss that can be “sterilised” will be exclusively the one resulting from the profit and loss statement of the balance sheet of the year affected by the Covid-19 crisis (Principle T.A.1).

To this end, it should be specified that the loss must have occurred within the financial year in which the date of 31 December 2020 occurs, since it is not necessary that the end of the financial year, as determined by the rules of the company’s articles of association, coincides with it (Principle T.A.2).

However, shareholders will have to reduce the share capital, in accordance with the provisions of the Civil Code, if, after the financial year 2020, the company produces losses which, alone or combined with losses prior to the financial year 2020, lead to the cases referred to in points 1 and 2 above (Principle T.A.7).

Moreover, the Notary Committee of Triveneto (Principle T.A.8) states that the applicability of Article 6 of Decree-Law no. 23/2020 is not automatic and, therefore, the “sterilisation” of the loss must be decided by the shareholders’ meeting, which will vote according to the majorities provided for by the articles of association.

If the shareholders’ meeting does not intend to take advantage of the five-year deferral provided by the emergency measure but, on the contrary, it decides to resolve on the capital reduction as provided for by the rules of the Civil Code, unanimity is not required (Principle T.A.6).

The shareholders’ meeting may also decide to adopt a resolution to partially cover the losses, postponing the decision to cover the remaining losses in the year 2025 (Principle T.A.7).

Finally, it is important to point out that the loss, which can be sterilised according to Article 6 of Law Decree 23/2020, will still be subject to the other rules of the Civil Code concerning losses (Principle T.A.12)