Quantum of statutory auditors’ liability - Proposed changes
On 29 May 2024 Camera dei Deputati of the Italian Parliament unanimously approved law proposal no. A.C. 1276 to amend Section 2407 of the Civil Code in the matter of statutory auditors’ liability. The Senate’s review of the proposal is expected in the next few months.
The scope of the proposal is to:
- limit quantum of statutory auditors’ liability by anchoring it to the level of fees (except in case of fraud);
- change the starting date of the five-year limitation period for bringing liability actions against statutory auditors.
If the proposal is approved, Section 2407 of the Civil Code would be amended as follows.
| Current wordings | Proposed wordings |
| Para. 1. Statutory auditors must discharge their duties with the professionalism and diligence required by the nature of the office; they are responsible for the truthfulness of their attestations and must keep the facts and documents of which they have knowledge by reason of their office confidential. | Unchanged |
| Para. 2. They are jointly and severally liable with the directors for the latter's actions or omissions, when the damage would not have occurred if they had supervised in accordance with the obligations of their office. | Para 2. Except where they acted with fraud …the liability of statutory auditors towards the company, shareholders, creditors and third parties is limited to a multiple of the annual fees, as follows:
|
| Para. 3. The provisions of Articles 2393, 2393-bis, 2394-bis and 2395 apply to liability actions against statutory auditors.Para. | Unchanged |
| Para. 4. The statute of limitations applicable to liability actions against statutory auditors is five years running from the date of the filing of the report under Article 2429 (ie the statutory auditors’ report attached to the financial statements) relating to the year in which the damage occurred. |
Limits to the quantum of statutory auditors’ liability
In recent years, the National Council of Accountants insisted for law measures aimed at limiting quantum of liability of the statutory auditors.
In fact, joint and several liability of statutory auditors along with the directors has always been a debated issue. Statutory auditors have a supervisory role, but they cannot interfere with management. In addition, directors' remuneration is typically far higher than that of statutory auditors. Despite this, the applicable law provides for unlimited liability of both the directors and statutory auditors, with no distinctions. Certain court decisions tried to mitigate this by ruling that, considering their different roles and responsibilities, quantum of liability between directors and statutory auditors should (internally) be split as follows: two-thirds to directors and one-third to statutory auditors.
This issue is not new in Europe. In Poland, Estonia, Slovakia and the Netherlands, the applicable laws provide limits that are similar to those now proposed by Italy. In Germany, Austria and Belgium a threshold on quantum is predetermined by law.
On the other hand, EU Directive no. 2006/43 and the EU Recommendation 2008/473 in the matter of external auditors already provide for mitigants of the quantum of liability, and apparently the Italian Parliament made reference to these for the purpose of the law reform.
Statute of limitation
As mentioned, the proposal under examination provides that the five-year limitation period applicable to the liability action against statutory auditors start running from the date of the issue of the annual report regarding the financial statement and not from the moment damage is perceived as it is now in case of third parties’ claims.
The same rule is set forth by Article 15(3) of Legislative Decree no. 39/2010 in case of external auditors’ liability, which is currently under the severe scrutiny of the Constitutional Court.
The Corporate Division of the Civil Court of Milan recently referred a case to the Constitutional Court. In their opinion, based on Article 15(3), the statute of limitation starts running even when the third damaged party is not in a position to perceive the damages suffered and the derogation form the general applicable rule (i.e. the statute of limitations start running from the date when the third damaged party is in a position to perceive that they have suffered damages) is unreasonable.
The decision of the Constitutional Court will probably influence the final decision on the proposed changes to Article 2407 of the Civil Code.
We will be monitoring developments and keep you posted.
