Consob Communication no. 5/2020 of 8 May 2020

Subject: Communication clarifying the application of the increased voting rules pursuant to Article 127-quinquies of Legislative Decree No. 58 of 24 February 1998 ("Consolidated Law on Finance")

1. INTRODUCTION AND REGULATORY FRAMEWORK

Article 20 of Legislative Decree no. 91 of 24 June 2014 ("Competitiveness Decree"), converted by Law no. 116 of 11 August 2014, introduced Article 127-quinquies into the Consolidated Law on Finance, which gives listed and listing issuers the possibility of introducing the increased voting mechanism in their by-laws.

Such mechanism is a deviation from the "one share-one vote" principle and, as is well known, was intended by the legislator as an incentive instrument for long-term investments and, therefore, as a measure rewarding stable shareholders.

Among other things, Article 127-quinquies of the Consolidated Law on Finance requires as follows:

a. conditions for the attribution of increased voting rights: the by-laws may provide for theattribution of increased voting rights, up to a maximum of two votes, to shares belonging to the same shareholder for at least 24 months. The continuous possession of the shares is counted from the date of the shareholder's entry in a "special list", which must be established and maintained by the companies that decide to introduce the mechanism in question, and the by-laws may provide for the shareholder who is granted the voting right to be able to irrevocably waive the increased voting rights, in whole or in part (paragraph 1);

b. methods for the attribution of the increased voting rights: the by-laws determine the methods for the attribution of the increased voting rights and for the verification of the relative prerequisites; Consob is delegated the power to regulate the provisions implementing the same article in order to ensure the transparency of the ownership structure and the observance of the provisions on takeover bids (paragraph 2);

c. loss of the increased voting rights: the transfer of the equity for a consideration or free of charge, as well as the direct or indirect transfer of controlling interests in companies or entities that hold shares with increased voting rights in excess of the threshold set forth in Article 120, paragraph 2, of the Consolidated Law on Finance entails the loss of the increased voting rights; furthermore, unless otherwise provided for in the by-laws, the increased voting rights are retained in the event of succession on death and of merger and spin-off of the holder of the shares, and the increased voting rights are extended to the shares issued as part of free capital increases (paragraph 3);

d. introduction of the increased voting rights during an IPO: if the resolution to amend the by-laws is passed during the proceedings for the listing on a regulated market of the shares of a company that does not result from a merger involving a company with listed shares, the relative clause may require that, for the purposes of continuous possession for twenty-four months, also the possession prior to the date of entry in the aforementioned list be taken into account (paragraph 7).

2. SCOPE OF THE COMMUNICATION - “POSSESSION PRIOR” TO ENTRY IN THE LIST

In performing the supervisory activity carried out by Consob, the need emerged for clarifying a specific aspect regarding the application of the discipline in question.

In particular, this Communication addresses the issue of the admissibility of the increased voting rights for a shareholder in consideration of a holding period - prior to the listing of the issuer - that also includes the period in which the listing company had the legal form of S.r.l. and not S.p.A.

2.1. Article 127-quinquies of the Consolidated Law on Finance, paragraph 7, allows listing companies to introduce the increased voting rights by allocating - for the purposes of calculating the continuous holding period - also the period prior to their listing. In particular, “If the resolution to amend the by-laws referred to in paragraph 6 is adopted during the proceedings for the listing on a regulated market of the shares of a company that does not result from a merger involving a company with listed shares, the relative clause may require that, for the purposes of continuous possession under paragraph 1, also the possession prior to the date of entry in the list under paragraph 2 be considered.

2.2. The mentioned provision of the Consolidated Law on Finance expresses the legislator's preference for listing by allowing listing companies to count, for the purposes of continuous possession for twenty-four months, the possession by the relevant shareholders prior to the date of entry in the list under paragraph 2 of the same provision (and, therefore, prior to the acquisition of the status of listed company and the establishment of the list that legitimates the holder of the shares to the increase).

In this regard, first of all, there are no obstacles to deem that the reference to "prior possession" contained in paragraph 7 of Article 127-quinquies of the Consolidated Law on Finance has a generic value that is such as to include any form of corporate shareholding (whether represented by shares or units); nor is it believed that a different reading can be made on the basis of the circumstance that the rule refers to the "continuous possession referred to in paragraph 1" which, in turn, refers to "shares"; this reference to shares appears to be “required", since the rule expressed therein is dictated, precisely, for companies with listed shares, in relation to which the increase will produce its effects.

Secondly, the mentioned reading of the provision in question is consistent with the rationale underlying the increased voting right mechanism, mainly in the desire both to encourage the listing of Italian companies - with a high level of family ownership, whose reference shareholders often fear that their entry on the stock exchange will dilute their shareholding and lead to the loss of control - and to "reward" maintaining long-term equity investments, in order to promote the stability of management policies.

The willingness to pursue the first of the purposes described above and the legislator's particular preference towards the use of the increased voting right mechanism as an instrument to facilitate recourse to venture capital are demonstrated by the possibility granted to listing companies to take advantage of the increased voting rights - once listed - by also taking into account the period prior to listing, for the purposes of the minimum period of holding the relevant shareholding for the vesting of the relevant right.

From this point of view, admitting that the prior continuous possession may also include the possession of S.r.l. units, would be perfectly in line with the rationaleof the provision and the increased voting right mechanism; not only: an opposite conclusion would also lead to an unjustified unequal treatment. There are no reasons why the reward mechanism in question should operate only in relation to the shareholding made up of shares and not also of units, also when bearing in mind that their possession implies the importance of elements that are linked to the "person" of the shareholder, just as happens in the regulation of the increased voting rights. In fact, the latter is not an intrinsic characteristic of a special category of shares, as in the case of multiple voting shares as per Article 2351 of the Italian Civil Code, but is connected precisely to the "person" of the shareholder and the shareholder's holding of the shareholding for a certain period of time.

It should also be stressed that the process of transformation of the legal form of a company ensures the "continuity of legal relations" and, therefore, is consistent with the need for continuity of the company's shareholding underlying the increased voting right mechanism.

2.3. In conclusion, when applying the current provisions on increased voting rights and, in particular, paragraph 7 of Article 127-quinquies of the Consolidated Law on Finance concerning listing companies, this Communication clarifies that any previous period of holding of shares in the capital of a S.r.l. may be counted for the purposes of the vesting of voting rights in the same way as the period of holding shares. This is subject to the condition that there is continuity between the shareholding subject to the increase and the shareholding held - also in the form of units - during the period needed for the vesting of the increased voting rights.

THE CHAIRMAN
Paolo Savona