With Court Ordinance no. 12366/2014, the Joint Sections of the Italian Supreme Court have been called to definitively rule on the correct criteria to be used in judgements relating to liability of directors of bankrupt companies in order to assess the damage that can be indemnified to such companies as a result of the maladministration of directors.

Such an issue is currently subject to a conflict in the case-law of the Italian Supreme Court, especially in cases where the records and accounting books of the company have not been correctly kept by the directors.

Some case law establishes that a presumption of law exists directly linking the lack of record keeping by directors with the so-called ‘bankruptcy deficit’ suffered by the company (i.e. the deficit between corporate assets and liabilities). As a consequence, and given the absence of proof to the contrary, the indemnifiable damage would entirely coincide with the bankruptcy deficit, without the need to prove that the damage suffered by the company effectively amounts to such a deficit.

This approach has been generally criticised by other case law, as it could potentially charge directors with damages which are not due to their maladministration, and it would also contrast with the general principles set forth by the Italian Civil Code in relation to determination of the damage. Indeed, such case-law proposed to value the damage suffered by the Company on a case-by-case basis, by assessing the effective existence of a causality link between the damage suffered and the behaviour of the director, without the possibility to automatically identify the indemnifiable damage with the entire bankruptcy deficit.

The Joint Sections of the Supreme Court will now definitively establish not only whether the damage to be indemnified can really be presumed to equal the difference between bankruptcy liabilities and assets, but also which conditions should be met in order to use such criteria.

The expected ruling will be of great importance, particularly in judgements relating to liability actions against directors and/or statutory auditors in which the identification and quantification of the damage incurred by the company is the most difficult aspect, due to the difficulty in proving what is or may be the damage directly caused by the maladministration of the director.