Rome Court of Appeal rules on Russian roulette clause

Russian roulette clause
Decision
Comment

Russian roulette clause

The Russian roulette clause is a type of clause included in the shareholders' agreement of a company owned on a 50:50 basis by two shareholders.

According to such a clause, if there is a deadlock situation and the corporate bodies (ie, the company's shareholders or board of directors) do not reach a decision on several items of the meeting's agenda, one of the shareholders (Partner A) can activate the Russian roulette clause towards the other shareholder (Partner B), declaring the price of 50% of the company's shareholdings and requesting that Partner B either:

• pays the price assessed by Partner A and then purchases the remaining 50% of the shareholdings; or
• sells to Partner A the 50% shareholding that it owns at a price assessed by Partner A.

The validity of Russian roulette clauses has been disputed as several scholars consider them to be against the mandatory provisions of company law relating to a shareholder's withdrawal from a company and their assessment.

Pursuant to Article 2437ter of the Civil Code, if the price assessed with regard to the Russian roulette clause is not aligned with the price which must be paid to the shareholder who elects to withdraw from the company, the withdrawing shareholder has the right to fair compensation (eg, in cases such as the amendment of the company's scope, the transfer of registered offices abroad and the company's transformation).

Decision

On 3 February 2020 the Rome Court of Appeal ruled on a Russian roulette clause included in a shareholders' agreement which had been entered into on a 50%-50% basis. The court held that it was a valid clause, confirming the Rome Tribunal's previous decision of 19 October 2017.

The Rome Court of Appeal declared that such a clause is valid even if the price assessed in accordance with a Russian roulette clause is not aligned with a shareholder's compensation due in the event of their withdrawal from the company, since such a clause is freely negotiable between the shareholders, while the compensation due in the event of a company's withdrawal applies only for specific cases according to the mandatory provisions of company law.

Comment

The Rome Court of Appeal's decision is aligned with other decisions by the Italian courts which recognise the principles of international business law with regard to shareholders' agreement clauses (eg, put option, drag along and tag along clauses).

For further information on this topic please contact Eugenio Vaccari at Grieco e Associati by telephone (+39 06 420 3881) or email (e.vaccari@griecoassociati.com). The Grieco e Associati website can be accessed at www.griecoassociati.com.