Fraudulent Bankruptcy and Director's Compensation: The Court of Cassation's Interpretation in Ruling No. 25183/2025

In the complex landscape of Italian bankruptcy law, the distinction between different types of bankruptcy is often the subject of debate and significant jurisprudential clarification. The Court of Cassation, with its recent ruling No. 25183 of May 13, 2025 (filed on July 9, 2025), presided over by P. R. and with C. F. as rapporteur, has provided an illuminating interpretation on a crucial aspect: the classification of the crime of fraudulent bankruptcy by misappropriation in cases where a director of a capital company withdraws sums as alleged compensation. This ruling deserves attention for its significant practical implications and its ability to draw a clear line between lawful and unlawful conduct.

The Director's Role and Withdrawals from Company Funds

The role of a director of a capital company is inherently complex, characterized by a relationship of organic identification with the entity they manage. This means the director acts as an integral part of the company itself. However, it can happen that a director also performs additional work activities that go beyond their typical management functions, for which they may have claims. It is precisely in this context that the issue analyzed by the Court of Cassation arises: when does a withdrawal of funds by a director, justified as compensation for work performed, become an unlawful act constituting bankruptcy?

The conduct of a partner-director of a capital company who withdraws sums from company funds allegedly corresponding to credits claimed for work performed in the company's interest, without providing elements that allow for adequate assessment, constitutes the crime of bankruptcy by misappropriation, and not bankruptcy by preferential treatment. This is because the relationship of organic identification established between the director and the company cannot be assimilated to a contract for services or a subordinate or quasi-subordinate employment relationship that would justify the credit for work performed in itself. Instead, the potential existence of such a separate and parallel relationship must be verified in concrete terms through the ascertainment of the objective performance of activities extraneous to the functions inherent in organic identification.

The above summary, taken from ruling No. 25183/2025, is of fundamental importance. It clarifies that the withdrawal of money by a director, even if motivated by alleged credits for work activities, can constitute fraudulent bankruptcy by misappropriation (Art. 216 Royal Decree No. 267/1942, Bankruptcy Law), and not the less serious bankruptcy by preferential treatment (Art. 216, paragraph 3, Royal Decree No. 267/1942). The difference is substantial: misappropriation presupposes the removal of assets from the company's patrimony to the detriment of creditors, while preferential treatment concerns the mere favoring of one creditor over others. The core of the issue lies in the legitimacy of the credit claimed by the director. The Court emphasizes that the relationship of organic identification is not automatically assimilated to a contract for services or a subordinate/quasi-subordinate employment relationship that justifies the credit in itself. It is necessary to demonstrate in concrete terms that the director has performed activities *extraneous* to their organic functions, and that these activities have been adequately documented and assessed.

Bankruptcy by Misappropriation vs. Bankruptcy by Preferential Treatment: A Critical Distinction

The ruling of the Court of Cassation is crucial in defining the boundary between these two forms of bankruptcy. Bankruptcy by misappropriation occurs when the entrepreneur (or the director, in this case) removes, conceals, disguises, destroys, or dissipates the company's assets, making them unavailable to creditors. In the case examined, the withdrawal of sums not justified by a valid and proven credit is equated to misappropriation, as it constitutes an unjustified removal of resources from the company's patrimony. Bankruptcy by preferential treatment, on the other hand, occurs when certain creditors are satisfied to the detriment of others, even in the presence of a legitimate credit. The ruling clearly tells us that if the director's credit is not adequately supported and documented, the withdrawal is not a mere preference, but a true misappropriation of resources.

Criteria for Assessing the Director's Credit

• **Objective Extraneousness of Activities:** The work performed by the director must be objectively extraneous to the typical functions inherent in organic identification (e.g., technical, operational, non-management tasks).
• **Adequate Documentation:** There must be clear and precise documentation attesting to the performance of such activities and their economic valuation.
• **Separation of Roles:** It is essential to have a clear distinction, including accounting, between compensation due for the director's role and that for any additional work activities.

Conclusions and Practical Implications

Ruling No. 25183/2025 by the Court of Cassation serves as an important warning for all directors of capital companies and the professionals who assist them. Jurisprudence is increasingly focused on preventing abuses and misappropriation of assets to the detriment of creditors. To avoid incurring the serious crime of fraudulent bankruptcy by misappropriation, it is essential that any withdrawal of sums from company funds, as compensation for the director's work activities, is supported by impeccable documentation demonstrating the actual performance of duties extraneous to the management role and the legitimacy of the credit. In the absence of such elements, the conduct may be considered an undue appropriation of resources, with serious criminal consequences. Prudence and transparency in corporate management remain the pillars for safeguarding assets and protecting all stakeholders.