If you buy shares of an Italian limited liability company, obtain a guarantee for the equity value of the company if you want to recover for contingent liabilities

A Milan court held that in a share transfer agreement, a transferor is only liable for contingent liabilities arising after the closing, if transferor guaranteed the equity value or acted fraudulently.

The agreement of transfer of shares of a SRL (Italian limited liability company) has as its main object the transfer of the transferor’s participation in the company and only as a consequence an interest in the equity of the company, which is connected to the ownership of the shares.

Therefore, the transferee has the right to demand the transferor to pay a part of the contingent liability arising after the transfer only when (i) the transferor provided an express guarantee on the corporate equity; or (ii) the transferor acted in bad faith. Here the transferee had demanded the transferor to reimburse some costs arising after the closing for situations existent before the transfer. There was a specific clause that provided for the splitting of certain contingent liabilities, however the court found that the requested costs were none of those. Tribunale di Milano, October 3, 2014, RG13559/2013. Read in Italian here. Decision available in Italian here

For more information, Francesca Giannoni-Crystal