The regulation of transactions with related parties. General aspects
The Article 2391-bis of the Civil Code, submits to Consob the task of preparing a regulation that establishes the general principles, to which the administrative bodies of Italian companies with shares listed on regulated Italian or other European Union markets and the Italian companies that have recourse to the risk capital market will have to comply and adhere to, the “rules that ensure the transparency and the substantial and procedural correctness of transactions with related parties“. The aforementioned principles must govern, as established by the second paragraph of art. 2391-bis of the Civil Code, “the transactions themselves in terms of decision-making, motivation and documentation“.
Therefore, with resolution no. 17221 of 12 March 2010, Consob adopted the Regulation containing provisions on transactions with related parties in implementation of the aforementioned art. 2391-bis Civil Code. Subsequently, with the communication DEM / 100078683 of 24 September 2010, Consob issued the indications and guidelines for the application of the Regulation on transactions with related parties adopted with resolution no. 17221 of 12 March 2010.
Before going into the merits of the discipline, it should be noted that the regulation of transactions with related parties has always been considered, even by the World Bank, as the tool through which to protect investors and small shareholders. As a matter of fact, the subject of transactions with related parties is part of a broader framework of group regulation and of the conflict of interest introduced with the reform of corporate law. It is therefore specified that the reform introduced into the corporate system an innovation that must be considered both in terms of the regulation of management and coordination activities and in terms of the regulation of conflicts of interest, with particular regard to the group.
Although the empowerment delegated to Consob concerned only the general principles regarding to the transactions with the related parties, the authority also wanted to determine the notion of related parties as without this definition the behavior of the directors would have been generic and inadequate.
The notion of related parties is therefore provided by the same Regulation where art. 3, paragraph 1, letter a) refers to attachment n.1 of the same Regulation. For related parties, it is intended, on the basis of the definition provided by the Regulations, those persons, legal or natural as the case may be, that hold a particular position of power within or towards the company on the basis of the exercise of management, administration and control functions and also on the basis of voting rights or the possession of shares in the share capital or even of particular ongoing contractual relations.
It is therefore a notion that basically reproduces what is established in the international accounting standard IAS 24, to which it was decided not to make a mere reference in order not to be subjected to possible amendments that would change the scope of application of the regulation de quo.
Paragraph 1.2 of the Communication with the Related Parties shows that the mere participation in a shareholders’ agreement does not involve an automatic correlation between the parties of the agreement and the Company. However, such involvement may occur for the party of the agreement if, due to the specific characteristics of the agreement, taking into account also the extent of the participation and the clauses governing the relations between the shareholders, it is possible to obtain control or significant influence on the company as per the definitions contained in the above art.1 of the Regulation concerning transactions with related parties. Furthermore, it is pointed out that the mere participation in a shareholders’ agreement from which for one or more persons derives the power to exercise control or a significant influence on the company does not determine for all the participants, “for this only” the quality of related parties. It is only with reference to the individual person that it shall be necessary to evaluate the existence of control and the significant influence of the latter also on the basis of the power to determine the management and financial policies of the company or to actively participate in their determination and decision.
In fact, companies constantly perform transactions with counterparties related to them. For example, consider the intragroup transactions that are performed by companies that act as a group and operate according to a logical way of coordination and integration of the various operating units to achieve the group’s objectives. Therefore, the criticality of these operations and consequently the conflict derives from the circumstance that, on one side, the company’s interest consists in creating value for all shareholders and, on the other, the related party tries to maximize the personal profit.
The risk that occurs in these operations consists in the fact that the person who decides or influences the decisions sits on both sides of the negotiating table and that can generate private benefits of control, this is to say of benefits which can be in a greater part compared to its own part of benefits, a phenomenon that is called by the term “tunneling“.
With particular reference to the phenomenon of so-called tunneling it is considered as the possibility for controlling shareholders to obtain wealth from the company by transferring the resources and profits generated outside the company by using their position of pre-eminence and control. Therefore operations with related parties are considered as the necessary means by which to apply tunneling and that is why various jurisdictions, including Italy, have decided to regulate in detail the above transactions.
Basically, through these operations, the Related Parties can take possession of the wealth that would be for the shareholders globally considered and this would not only damage the interests of the individual company’s shareholders but would result in an increase of the cost of the capital and would have a negative impact on the financial markets which would significantly reduce the ability to effectively distribute the resources.
With particular reference to the notion of transactions with related parties, art. 3, paragraph 1, letter a) refers to attachment no.1 of the same regulation. The transactions in question refer to transactions of a commercial, industrial or financial nature with related parties. Consob with the Communication concerning the related parties clarifies in paragraph 1.6 that capital increases, which exclude the right of option, are to be considered as included when reserved in favor of Related Parties. On the other hand, capital increases are considered excluded, on equal terms, to both Related Parties holding financial instruments and to all other owners of such instruments.
In order to carry out a Transaction with a Related Party, there must be a transaction carried out by the company and destined to directly affect its assets. In examining relationships with Related Parties, the attention must be focused on the substance of the relationship and not simply on the legal form of the relationship.
The economic relevance of Transactions with Related Parties leads to the inclusion of the financial operations for which the related party, alone or together with other banks, assumes the role of arranger or leader as specified in par. 1.7 of the Related Parties Communication.
The categories of transactions with related parties
Essentially, in terms of organisation, a distinction must be made between transactions of greater importance and transactions of lesser importance. The former are characterized by the fact of having a greater impact on the patrimonial and financial structure of the company, while the latter can be qualified based on their importance and impact that may have on the company. Therefore, these are subjected to preventive investigations in order to verify the economic convenience.
The transaction of greater importance, pursuant to attachment no. 3 of the reg. n. 17221 of 12 March 2010 are those transactions which exceed the 5% threshold of at least one of the three indexes, such as the equivalent-value agreed on assets, assets and liabilities relevance acquired. It is further specified that this threshold falls to 2.5% for transactions carried out by subsidiaries with shares listed or widely distributed with the parent company or with subjects related to the latter.
The aforementioned transactions must be approved with the favorable opinion of a committee of independent directors even if specially formed. In the absence of such opinion, the transaction may be submitted to the Shareholders’ Meeting which has the possibility of approval with the favorable vote of the majority of the unrelated shareholders (so-called whitewash).
With particular reference to the transactions of greater importance, it should be noted that they are subject to a particular transparency regime. In fact, pursuant to art. 5 of the Related Parties Regulation, the companies must prepare an informative document in accordance with Article 114, paragraph 5 of the Consolidated Finance Law, drawn up in compliance with Attachment 4, both for individual transactions and for homogeneous transactions which are carried out in execution of a unified design, where the threshold is exceeded if cumulatively considered. The informative document consists not only in indicating the related party but also in highlighting the risks connected to the potential conflicts of interest that may arise from the transaction, as well as specifying the economic reasons and convenience for the company for such transaction.
Transactions with an index of less than 5% are considered of lesser importance. In general, it is believed that the transactions do not involve particular risks for investors, even if they are concluded with a related party. However, it is considered that these transactions, pursuant to art. 7 of the Related Party Regulation, are subject to a regime based on the following elements: that the opinion of non-executive and non-related directors must be motivated but not binding; adequate and complete information must be provided to both the competent body to decide on the transaction and to the committee of independent and unrelated directors; full disclosure must be provided, at least quarterly, to the board of directors and the board of statutory auditors on the execution of transactions.
In addition, the identification of “transactions for smaller amounts” is left to the discretion of the company. Pursuant to art. 13 of Related Parties Regulation, the aforementioned transactions may be excluded from the application of the Regulation itself on a voluntary basis pending the introduction of standards that can be shared at an operational level. In any case, the reference shall be made to transactions that are neither attributed to nor shall be authorized by the Shareholders’ Meeting.
The opinion of the independent directors in the approval of the procedures regarding the transaction with the related parties
The independent directors play an essential role within the administrative body. Their task is to supervise the achievement of the social interest by the executive directors and to prevent opportunistic behavior by the latter. Therefore, they must contribute to the decisions of the board of directors with a judgment that is free and independent. The role of the independents has been strengthened over the years since they have been given competences in all those matters in which an unconditional and autonomous judgment is necessary.
It should further be reiterated that the regulation de quo assigns to independent directors a fundamental role in the approval procedures concerning the activities with the Related Parties in order to prevent the risk of making decisions that are instrumental to the achievement of the individual interests of one or more members instead of company interest. The company interest consists, in fact, in the interest of the shareholders to enhance their participation in terms of income and property, and the directors must act within the limits imposed on them by either contractual restrictions or legislative limits.
The regulation of public limited companies contains three degrees of independence: the one for companies that do not participate to the risk capital market, these are companies that adopt the one-tier system; the statutory ones, which adopt any administration system; and finally, the one regarding the directors of listed companies. Therefore, it can be considered that the greater risks, both in listed and not listed companies, are connected to incorrect behaviors and actions, which could lead to benefits in the interest of the controlling shareholder to the detriment of minority shareholders. Such action can be implemented through various transactions including extraordinary transactions, remuneration policies and especially in transactions with related parties.
The assignment to the independent directors of the function of assessing ex ante compliance with the principles of procedural and substantial correctness in the implementation of transactions with related parties was made by Consob pursuant to art. 2391 – bis Civil Code. Therefore, independent directors are not required to negotiate and / or approve transactions with related parties but only to be involved in the negotiations by receiving an important information flow and expressing their opinion on procedural and substantial correctness, while the approval of transactions is assigned either to the board of directors or to the corporate bodies and structures according to the importance of the operations. Therefore, any liability for damage caused by having approved an operation contrary to the corporate interest lies either with the deliberating body or becomes the collective responsibility of the entire board, and the independent directors may be kept liable not for the operation itself – except as members of the board of directors pursuant to art. 2392 Civil Code – since their potential intervention in the negotiations is not decisive but for the violation of specific obligations that the regulation requires them to perform.
However, it should be noted that the independent directors who arbitrarily issued a negative opinion or held obstructive behavior may be dismissed from office and be held responsible for damage caused to the company and to the shareholders. On the other hand, if they have diligently issued the opinion by using all the necessary means and acquiring all the relevant information, they can be made exempt from any liability.
Finally, it must be pointed out that the independence requirement is essential for the purpose of objective and independent assessments, provided that the management bodies have provided a prompt and complete information flow at each stage of the approval procedure. Surely, this requirement does not fail if the independent director receives an additional remuneration for having exercised his task within the Committee of the Related Parties every time an important transaction must be approved.
Procedural rules concerning transactions with related parties
Coming now to the adoption of the procedure concerning the transaction, it should be noted that the same is divided into several phases. The first consists of identifying the person called to give a prior opinion on the operation to the board of directors. The opinion is provided by a committee, even if specially formed, composed entirely of independent directors. In the event that the board of directors of the company is composed of fewer than three independent directors, the resolutions shall be adopted following the favorable opinion of the existing independent directors or, failing that, after the non-binding opinion of an independent expert.
The second phase consists of rendering the opinion, pursuant to art. 4 paragraph 3 of the Regulation; this opinion is mandatory and its role changes depending on the person/entity that provides such opinion. It is considered non-binding if it is rendered by an independent expert unrelated to the corporate bodies, in other cases it is considered as binding. With particular reference to the content it can be positive or negative. In the case of a positive opinion, the same can introduce either conditions for the adoption of specific modifications or suggestions. If instead it is a negative opinion it should also contain the reasons why the proposed solution is not considered suitable.
The third and last phase consists of approving the procedures. This approval is attributed to the board of directors or supervisory board in companies which adopt the two-tier system. Once the procedures have been approved, the same must be published, pursuant to art. 4 paragraph 7 of the Related Party Regulations, on the company website, with the obligation to advertise also in the annual management report.
Markus Roth, Related party transactions: board members and shareholders The European Commission proposal and beyond, 2016, available at SSRN: https://ssrn.com/abstract=2710128.
Montalenti P., Le operazioni con parti correlate, in Giurisprudenza commerciale, 2011.
Salafia V. Linee generali delle operazioni con parti correlate, in Le Società, 2016.
Pomelli A. La disciplina delle operazioni con parti correlate, in Le nuove leggi civili commentate, 2010.
Atanasov V. Bernard Black, e Conrad S. Ciccotello, Law and Tunneling, 2011, available at SSRN: https://ssrn.com/abstract=1444414;
Enriques L., Related Party Transactions: Policy Options and Real-World Challenges (with a Critique of the European Commission Proposal), 2014, available at SSRN: https://ssrn.com/abstract=2505188.
Houben M. Operazioni con parti correlate e operazioni con soggetti collegat: confini e sovrapposizioni. Le interferenze soggettive e oggettive nelle banche quotate, in banca, borsa e titoli di credito, 2014.
Troisi A. Le operazioni con parti correlate in ambito bancario e finanziario, in Banca, borsa e titoli di credito, 2011.
Giuseppe G. Appunti in tema di interesse sociale e governance nelle società bancarie, in Rivista del diritto commerciale e del diritto generale delle obbligazioni, 2017.
Montalenti P. Le operazioni con parti correlate: questioni sistematiche e problemi applicativi, in Rivista del diritto commerciale e del diritto generale delle obbligazioni, 2015.
Drisaldi R. Gli amministratori indipendenti nella disciplina e nella prassi: comparazioni e riflessioni, in Le società, 2014.
- Rimini, Gli amministratori indipendenti nella proposta di regolamentazione Consob in materia di operazioni con parti correlate, in Giurisprudenza Commerciale, 2009 fasc. 3 pp. 596.
Pomelli A. La disciplina delle operazioni con parti correlate, in Le nuove leggi civili commentate, 2010.
Zoppini A.– Diele G. Sulla remunerazione spettante agli amministratori indipendenti incaricati di prendere parte alle trattative ai sensi della disciplina delle operazioni con parti correlate, in Rivista del Notariato, 2015.
Richter M. S. Le procedure per le operazioni con parti correlate, in Rivista delle società 2011.
 P. Montalenti, Le operazioni con parti correlate, in Giurisprudenza commerciale, 2011, fasc. 3 pt. 1 p. 320-321.
 V. Salafia, Linee generali delle operazioni con parti correlate, in Le Società, 2016, fasc. 12 pag. 1326.
 The definition of related party indicated in the regulation is as follows: “An entity is a related party to a company if:
(a) directly or indirectly related, through subsidiaries, trustees or an intermediary:
(i) controls the company, is controlled by, or is under common control;
(ii) holds a stake in the company to exert significant influence over the entity;
(iii) exercises control over the company jointly with others;
(b) is an associate of the company;
(c) is a joint venture in which the company is a participant;
(d) is one of the key management personnel of the company or its parent;
(e) is a close relative of a person referred to in paragraphs (a) or (d);
(f) is an entity in which a person referred to in paragraphs (d) or (e) exercises control, joint control or significant influence or owns, directly or indirectly, a significant portion, but not less than 20 % of voting rights;
(g) is a supplementary pension fund, collective or individual, Italian or foreign, established for the employees of the company, or any other entity associated with it.”.
 A. Pomelli, La disciplina delle operazioni con parti correlate, in Le nuove leggi civili commentate, 2010 fasc. 6, pp.1350-1351.
 Ivi, pp.1333-1334.
 Luca Enriques, Related Party Transactions: Policy Options and Real-World Challenges (with a Critique of the European Commission Proposal), 2014, available at SSRN: https://ssrn.com/abstract=2505188.
 M. Houben, Operazioni con parti correlate e operazioni con soggetti collegat: confini e sovrapposizioni. Le interferenze soggettive e oggettive nelle banche quotate, in banca, borsa e titoli di credito, 2014 fasc. 4. Pt. 1 p. 450.
 The said attachment states that: “A related party transaction shall be understood as any transfer of resources, services or obligations between related parties, regardless of whether for valuable consideration. Be deemed to be included:
– merger transactions, spin-off by incorporation or strictly non-proportional spin-off, if carried out with related parties;
– any decision on the allocation of wages and economic benefits, in whatever form, for members of the administrative and control bodies and management personnel with strategic responsibilities.”
 A. Troisi, Le operazioni con parti correlate in ambito bancario e finanziario, in Banca, borsa e titoli di credito, 2011, fasc. 5 pt. 1 p. 657.
 Salafia, Linee generali delle operazioni con parti correlate, in Le Società, 2016, fasc. 12 pag. 1327.
 G. Giuseppe, Appunti in tema di interesse sociale e governance nelle società bancarie, in Rivista del diritto commerciale e del diritto generale delle obbligazioni, 2017 fasc. 2 p. 260.
 P. Montalenti, Le operazioni con parti correlate: questioni sistematiche e problemi applicativi, in Rivista del diritto commerciale e del diritto generale delle obbligazioni, 2015 fasc. 1 p. 65.
 R. Drisaldi, Gli amministratori indipendenti nella disciplina e nella prassi: comparazioni e riflessioni, in Le società, 2014 fasc. 7 pag. 790-805.
 E. Rimini, Gli amministratori indipendenti nella proposta di regolamentazione Consob in materia di operazioni con parti correlate, in Giurisprudenza Commerciale, 2009 fasc. 3 pp. 596.
 A. Pomelli, La disciplina delle operazioni con parti correlate, in Le nuove leggi civili commentate, 2010 fasc. 6, pp.1343 – 1344.
 Ivi, pp. 1391 – 1392
 A. Zoppini – G. Diele, Sulla remunerazione spettante agli amministratori indipendenti incaricati di prendere parte alle trattative ai sensi della disciplina delle operazioni con parti correlate, in Rivista del Notariato, 2015 fasc. 5 p. 936.
 Mario Stella Richter jr., Le procedure per le operazioni con parti correlate, in Rivista delle società 2011, fasc. 1 pp. 66-67.