SRD II: amendments to the Regulation on Related Party Transactions in force from 1 July 2021

Prepared by Cristina Cengia


On 1 July, the amendment to Regulation no. 17221 of 2 March 2010 on related party transactions (the “Regulation”), carried out by Consob with Resolution no. 21624 of 10 December 2020 (the “Resolution”) came into force in order to transpose into Italian law the changes enacted by the (EU) Directive 2017/828 (the “Shareholder Rights Directive II” or “SRD II”) on the encouragement of long-term shareholder engagement. The intervention of Consob follows the adjustment of the primary legislation provided by Legislative Decree no. 49 of 10 June 2019 (the “Decree”), which amended Article 2391-bis of the Civil Code reserving to Consob the possibility of adopting the appropriate regulatory amendments. Consob, although to a limited extent – as the provisions of the Regulation were already substantially in line with the provisions of SRD II – intervened on several matters, including: (i) the definition of “related parties” and “related party transactions”; (ii) the duty of abstention of directors in conflict of interest; (iii) the committee of independent directors; and (iv) the cases and powers of exclusion from the application of the Regulation.

The new definition of “related parties” and “related party transactions

As the most relevant amendment, the Resolution entailed the repeal of Annex 1 to the Regulation, which included the definition of related parties and the other functional definitions contained in the IAS/IFRS in force at the time of the Regulation’s adoption in 2010. In accordance with the provisions of SRD II, the Regulation now provides for a mobile reference to the definitions of related parties and transactions with related parties identified by the international accounting standards in force from time to time.

For the purpose of assisting the operators, an extract of the definitions of related parties and related party transactions under IAS 24, as well as a mention of further definitions functional to the same provided for by international accounting standards, are provided in the appendix to the Regulation.

Notwithstanding the before-mentioned, companies can, on a voluntary basis, extend the subjective scope of application of their internal procedures to parties other than related parties.

The duty of abstention of directors in conflict of interest

In execution of the authority granted by Article 2391-bis – as amended by the Decree – the Regulation introduced the definitions of directors and managing directors involved in the transaction, identified as “directors, management or supervisory directors who have an interest in the transaction, be it their own or that of third parties, in conflict with that of the company“, as well as the obligation for them to abstain from voting on it.

For the purposes of the previous paragraph, Consob explained that those directors who are required to abstain from voting are included in the quorum of the meeting of the administrative body but are excluded from the quorum for the adoption of resolutions. Therefore, the directors who are required to abstain will not be included among the directors for the purposes of calculating the absolute majority – or any other majority provided for in the articles of association – required for a resolution.

The Committee of Independent Directors

The intervention of Consob also concerned the role of the committee of independent directors, with particular reference to the reasoned opinion on the interest and appropriateness of the related party transaction – whether of lesser or greater importance – to be provided by the above-mentioned committee to the relevant body responsible for the decision.

In this regard, Consob has specified that in the most relevant transactions the committee must be involved immediately in the negotiations and investigation stages through the receipt of a complete and updated flow of information and, in the case of both transactions of greater importance and those less relevant, the opinion prepared by the committee must be attached to the minutes of the committee meeting.

With reference to the possibility that the committee can be assisted by one or more independent experts of its own choice, Consob clarified that the committee must first verify the independence of the experts, taking into account the reports mentioned in paragraph 2.4 of Annex 4 of the Regulation. In particular, the committee shall analyse any economic, property and financial relations between the independent experts, and (i) the related party, the companies controlled by it, the entities controlling it, the companies under common control and the managers of the aforementioned companies; (ii) the company, the companies controlled by it, the entities controlling it, the companies subject to common control and the managers of the aforementioned companies.

Cases of exclusion

With regard to the cases of exclusion from the application of the Regulation, the amendment made by Consob has substantially maintained the structure of the Regulation. In this regard, the most relevant changes concern:

  • the provision of an exclusion relating to the transactions approved by companies and addressed to all shareholders on equal conditions, including: (i) capital increases (including for servicing convertible debenture loans) and the gratuitous capital increases envisaged by Article 2442, Italian Civil Code; (ii) demergers in the strictest sense, in whole or in part, with assignment of shares on a proportional basis; (iii) share capital reductions by means of reimbursement to shareholders;
  • the exclusion of small amounts transactions, which loses its optional nature with the subsequent obligation for companies to identify them through the provision of small amounts thresholds in their procedures. These thresholds shall be diversified at least according to the nature of the counterparty;
  • the partial amendment of the exclusion on remuneration already provided for in the previous version of the Regulation. In particular, the exclusion on remuneration applies to directors and board members holding special office and to other managers with strategic responsibilities if the remuneration granted is defined in the presence of and in accordance with a remuneration policy approved by the shareholders’ meeting, and is quantified on the basis of criteria that do not involve arbitrary evaluations;
  • the exclusion from disclosure obligations for the transactions of greater importance completed at terms equivalent to market or standard conditions. In this regard, the Regulation now requires companies to disclose to Consob and to the directors or independent directors giving an opinion on transactions with related parties, counterparty, the scope, the consideration of transactions that benefited from the exclusion as well as the reasons why the transaction has been completed at arm’s length, supplying objective facts.

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Cristina Cengia

PwC TLS Avvocati e Commercialisti