Legislative Decree No. 231/2001 (“Decree”) introduced into the Italian legal system a regime of administrative liability for entities in connection with certain offences committed, in their interest or for their benefit, by persons holding representative, administrative or management positions, or by persons under their direction or supervision. This liability exists alongside – rather than in place of – the criminal liability of the natural person who committed the offence. Alongside pecuniary sanctions, the Decree provides for disqualification measures capable of jeopardising business continuity and, consequently, the value of the investment.

IS YOUR TARGET AT RISK? When structuring an M&A transaction, the due diligence process conducted on the target company – which is essential to identify all risk factors likely to affect the value of the transaction and to define appropriate contractual safeguards – must also include a specific focus on administrative liability arising from the Decree.

BEYOND COSMETIC COMPLIANCE: WHAT TO LOOK FOR.  Due diligence investigations should not be limited to verifying the formal adoption of an organisation, management and control model pursuant to the Decree (the “Model“). Although the adoption of such a Model is certainly an essential factor, it is not in itself sufficient to ensure that the company is not subject to “231” liability. Instead, the Model’s effective implementation and regular updating must be assessed. Equal attention should also be paid to the functioning of the Supervisory Body, its composition, independence and practical operation, as well as to the adequacy of organisational safeguards in the areas most exposed to the risk of offences. Furthermore, it is particularly important to verify the existence of any criminal proceedings or significant allegations under the Decree, because such issues will not disappear as a result of the extraordinary transaction.

“231” LIABILITY AND EXTRAORDINARY TRANSACTIONS. Articles 28 et seq. of the Decree govern transformations, mergers and demergers. The legislator pursues a specific objective: to prevent extraordinary transactions from becoming a means of circumventing the liability regime established by the Decree. Therefore, any “231” liability under the Decree survives in the event of a transformation, merger or demerger. Is there anything that can be done to mitigate the risks of liability arising under the Decree? An entirely new risk assessment, Model and compliance structure may be a good solution.

WHAT ABOUT BUSINESS TRANSFERS?  A milder regime applies in the event of the transfer or contribution of a business in connection with which an offence giving rise to liability under the Decree has been committed. The transferee is jointly liable with the transferor, but only for pecuniary sanctions recorded in the accounting books or relating to an offence of which the transferee was aware.

KEY TAKEAWAYS.  Compliance issues arising under the Decree should not be regarded as a secondary aspect of legal due diligence, but as an essential component of the overall transaction assessment, capable of influencing the structure of the deal, the agreed financial terms and the rights and obligations of the parties post-closing.