The corporate clause of the russian roulette

The corporate deadlock

Very often in companies, the capital is distributed equally among the shareholders who also manage the company.

A concrete example in an S.R.L. is that of the forecast of a board of directors composed from four associates that they have each the percentage of 25 of the shares.

Another frequent case of stalemate is when the company consists only of two shareholders who hold equal shares.

In this cases the company works until the first problems of different views on the management of the company itself arise, as a result of which there is a strong risk of the occurrence of a stalemate (deadlock), without the possibility of this stasis being resolved.

In these cases, careful strategic analysis is always necessary, both to predict a possible situation of conflict between partners, and remedies that aim to dissolve the stalemate, with the main aim of ensuring that the company continues to function, otherwise the only possible scenario is the dissolution of the same.

This last solution would surely involve a loss for the societies that are in profit or that however that would have remarkable potentialities.

The clause of the Russian roulette (also called the cowboy clause)

Company law in Italy provides for several mechanisms to prevent or manage deadlocks, and some of these are aimed at maintaining the social relationship in life, while others aim at the dissolution of the same.

In particular the clause of the russian roulette, of Anglo-Saxon origin, confers to a shareholder the possibility to begin a procedure for the determination of the transfer price of the social participations.

The operation of the clause, in practice, is simple: one member makes an offer to the other member to purchase the social participation indicating the purchase price.

Those who have received the proposal may:

sell its corporate partecipation; or

becomes obliged to buy the shareholding of the member who made the proposal, paying the price indicated in the same.

The obvious advantage is surely the rapidity, since every member has a possibility to acquire the participation of the other (metaphorically every member can fire a shot).

Another advantage is that the member who intends to buy to become a sole member will offer a realistic price, not to risk being forced to sell at a low price.

The difficulty of use of the clause in the practice, instead, lies in the fact that the shareholder who activates the mechanism of the Russian roulette could see the same backfire against him, being forced to sell his participation.

The Jurisprudence (or case law)

With the sentence n. 22375 of 25 July 2023, the First Civil Section of the Supreme Court has been pronounced in favorable sense on the validity of the clause of the russian roulette that, in the present case, was contained in a shareholders’ agreement.

The Supreme Court emphasizes as the same structure of the clause of the russian roulette intrinsically represents a barrier to the mere arbitrariness of one of the parts in the determination of the price, despite the absence of objective criteria to which to refer.

The Court also continues, in proximity also to the Maximum Notary n. 181 of the Notary Council of Milan, indicating that there are no regulatory limits on the freedom of negotiation of the parties with regard to the principle of fair value.

It is also very interesting to point out that the Supreme Court goes further, arguing, that the clause of russian roulette does not embody a passive or forced exit of the member to whom it is proposed, since the latter constitutes a choice, enough to remove him from a position of subjection towards the offeror.

The Notary Maxims

Among the most relevant Notary Maxims, we can indicate the following:

number 181/2019 Council of Notaries of Milan with which it is considered legitimate to include the clause of the russian roulette in the articles of association;
number 72/2020 Council of Notaries of Florence with which the anti-stall clauses are considered legitimate and do not affect the shareholdings of the members but which prevent and/or resolve the decision-making stall by using the terms and/or conditions;
number 73/202 Council of Notaries of Florence which considers the statutory clause of Russian roulette legitimate even in the absence of a mechanism or criteria of predetermining the price of the shares transferred; nor does it take into account whether the value is equal to that which can be determined at the time of withdrawal pursuant to Articles 2437 and 2437;
number 198/2021 Council of Notaries of Milan which represents a variation on the theme of the clause of roulette brawl, according to which in the case of member defaulting on the purchase of the participation, the other party has the right to purchase the same to such an extent as to overcome the stalemate with a reduced fee as a penalty.