Articles
29/07/2020
Capital Markets

Capital increase simplifications

1. Foreword

As part of the amendments to company law aimed at helping companies cope with the difficult economic situation caused by the COVID-19 pandemic, in order to facilitate prompt resolutions on, and implementation of, capital increase transactions, by Article 44 of Decree Law No. 76 of 16 July 2020 (“Simplification Decree“), Italian lawmakers have introduced a number of amendments aimed at facilitating the raising of venture capital and contributions in kind.

2. Softening of reinforced majorities until 30 April 2021

Article 44 of the Simplification Decree includes provisions aimed at softening, only until 30 April 2021, the reinforced quorum of two thirds of the share capital represented at a shareholders’ meeting, required for passing resolutions under, respectively: (i) Article 2368, paragraph 2, second sentence, of the Italian Civil Code, for extraordinary shareholders’ meetings on first call (which only applies [1] to companies resorting to the venture capital market [2]); (ii) Article 2369, paragraph 3, of the Italian Civil Code, for  extraordinary shareholders’ meetings on second call [3] (which only applies to share companies); and (iii) Article 2369, paragraph 7, of the Italian Civil Code, for extraordinary shareholders’ meetings on subsequent calls [4] which likewise only applies to companies resorting to the venture capital market [5]).

Such favourable rules apply to resolutions concerning: (i) increase in share capital by new contributions pursuant to Articles 2440 and 2441 of the Italian Civil Code; (ii) the introduction in the Articles of Association of a clause allowing the exclusion of option rights pursuant to Article 2441, paragraph 4, second sentence, of the Italian Civil Code (see paragraph 3 below); and (iii) granting directors the power to increase share capital, pursuant to Article 2443 of the Italian Civil Code.

In the above cases, therefore, resolutions shall be validly passed with the favourable vote of the majority of the share capital represented at the meeting, even if the by-laws provide for higher majorities, without prejudice to the attendance of at least 50% plus one share of the capital at the shareholders’ meeting.

3. Option capital increases

In amending the rules concerning option offers under Article 2441, paragraphs 2, 3 and 4, of the Italian Civil Code, Italian law-makers have on the one hand introduced some amendments of a general nature and, on the other, regulated certain specific aspects concerning companies listed on regulated markets (MTA), putting them beside issuers whose shares are traded on MTFs (think, in particular, of AIM Italia).

The first category of amendments (of a general nature) relates to the time of exercise of the option. The second paragraph of new Article 2441 of the Italian Civil Code indeed provides that, for the exercise of the option right, a time period must be granted of at least 14 days from the publication of the offer in the company’s website, or, in the absence thereof, from the registration of the option offer in the company’s register.

Concerning the second category of amendments, paragraph 3 does not change the provision for a pre-emption right granted to the shareholders exercising the option, provided that they apply for such right (by means of concomitant statements, to avoid any objections).

For issuers whose shares are listed in regulated markets or traded on multilateral trading facilities, the right is envisaged to require the pre-emption right on shares (or convertible bonds) non opted out to be exercised at the time of exercise of the option right, indicating the maximum number of shares subscribed to, in order to speed up the procedure of allocation of any non-opted shares [6].

4. Capital increases reserved within the limit of 10%

In paragraph 4 of the same Article 2441 of the Italian Civil Code, Italian law-makers have provided that, like in the case of MTA listed companies, also for companies whose shares are traded on AIM Italia, in the context of share capital increases, the option right can be excluded from the by-laws  within the limit of 10% of the pre-existing capital, or, in the absence of an indication of the nominal value of the shares, within the limit of 10% of the number of the pre-existing shares, provided that the issue price corresponds to the market value of the shares and this is confirmed by an ad hoc report of an auditor or an audit firm.

As provided by Article 2441, paragraph 6, of the Italian Civil Code, for capital increases excluding the option right provided for therein, directors are required to give reasons for the exclusion of the limitation of the option right in an ad hoc report, to be filed at the company’s registered office and published in the website by the time of convocation of the shareholders’ meeting.

The reference to the market value, for companies traded on a MTF like AIM Italia, as a parameter for determination of the price of placement of shares in case of share capital increase, cannot but facilitate issues of shares, whose value can be defined according to a ready-to-use use criterion, already known in practice.

5. Capital increases reserved within the limit of 20%

Finally, on an interim basis, Italian law-makers have provided that, up to 30 April 2021, companies whose shares are traded on trading facilities  or listed in regulated markets will be able to resolve upon share capital increases, under Article 2441, paragraph 4, last sentence, of the Italian Civil Code (and, therefore, using the market value of the shares), even in the absence of an express provision in the by-laws, within the limit of 20% (threshold doubled in the emergency period) of the pre-existing share capital, or, in case of non-indication of the nominal value, within the limit of 20% of the number of the pre-existing shares, subject to the conditions provided for therein [7].

 

The content of this article is for informational purposes only and does not constitute professional advice. For more information please contact Lukas Plattner.

 

[1] It should be recalled that Article. 2368, paragraph 2, second sentence, of the Italian Civil Code provides that, in companies resorting to the venture capital market, extraordinary shareholders’ meetings are duly convened when at least half of the share capital or any higher percentage required by the bylaws is represented, and resolutions are passed with the favourable vote of at least two thirds of the share capital represented at a shareholders’ meeting.
[2] These are, under Article 2325-bis of the Italian Civil Code, companies whose shares are listed on a regulated market and issuers of financial instruments widely distributed among the public pursuant to Article 2-bis of Consob’s Issuers’ Regulation adopted by resolution No. 11971/1999 (which defines the issuers of financial instruments widely distributed among the public as Italian issuers that: a) have different shareholders to the majority shareholders accounting for more than five hundred, overall holding an at least 5% share in the share capital; and b) do not meet the requirements for drawing up the financial statements in an abridged form pursuant to Article 2435-bis, paragraph 1, of the Italian Civil Code).
[3] Pursuant to Article 2369, paragraph 7, of the Italian Civil Code, on second call, shareholders’ meetings take resolutions on the matters supposed to be dealt with on first call, whatever the share capital represented, and extraordinary shareholders’ meetings are duly convened when more than one third of the share capital is in attendance and resolutions are passed with the favourable vote of at least two thirds of the share capital represented at the meeting.
[4] Pursuant to Article 2369, paragraph 7, of the Italian Civil Code, in companies resorting to the venture capital market, extraordinary shareholders’ meetings are duly convened, after the second call, when at least one fifth of the share capital is represented unless a higher share of capital is required by the by-laws, and resolutions are passed with the favourable vote of at least two thirds of the share capital represented at the meeting.
[5] See above, note 2.
[6] It should be noted that the obligation was eliminated to tender non-opted shares on the market (for five days) to facilitate the raising of capital by companies listed in regulated markets.
[7] In such case, Italian law-makers have provided that the time for convocation of the shareholders’ meeting be reduced by half.

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