Bonds instead of shareholder loans? Subordination still applies (under certain conditions)

Financing a company by subscribing to bonds rather than providing a loan does not shield the subscriber from the risk of being repaid only after all other creditors. This is what the Naples Court of Appeal stated in a recent ruling which the Court itself describes as “entirely novel”.

The case decided by the Naples Court of Appeal

In judgment no. 5272 of 6 July 2026, the Naples Court of Appeal addressed a long-debated issue: whether the subordination provided for in Article 2467 of the Italian Civil Code for shareholder loans may also apply to the repayment of a bond issued by a public limited company. The Court’s answer is in the affirmative, subject to certain conditions.

The case concerned a non-convertible bond issue, authorised during a period of crisis and subscribed to in full by the company’s directors themselves. One of them – the managing director of the issuer and, at the same time, a shareholder and sole director of one of the two companies holding its share capital – had sought repayment of the bonds when the company had already become insolvent, obtaining a payment order.

At first instance, the Court had dismissed the company’s opposition to the payment order, considering it decisive that the bondholder was not formally a shareholder. The Court of Appeal overturned the decision and set aside the payment order.

What is the subordination of shareholder loans (Art. 2467 Civil Code)?

Under Article 2467 of the Italian Civil Code, the repayment of loans made by shareholders to the company is subordinated, that is to say, takes second place to the satisfaction of other creditors. In practical terms, the shareholder-lender is repaid only after all other creditors have been paid and, until the company has overcome its financial difficulties, cannot claim repayment of the sums.

The rule applies to loans ‘in whatever form’ and granted at a time when, taking into account the nature of the company’s business:

• there was an excessive imbalance between debt and equity, or
• there was a financial situation in which a capital contribution would have been reasonable.

The aim of the provision is to combat the undercapitalisation of companies, particularly those with a limited shareholder base. The risk that the legislator seeks to prevent is clear: to prevent shareholders from injecting resources into the company in the form of a loan rather than capital, thereby shifting the business risk onto creditors.

To which companies does it apply

Although Article 2467 of the Civil Code is situated within the provisions governing limited liability companies (S.r.l.), the Supreme Court has extended its application by focusing on the organisational characteristics of the company rather than its legal form. The subordination may therefore also apply:

• in public limited companies (S.p.A.), where the company’s organisational structure allows a shareholder to access information comparable to that available to a shareholder of a limited liability company (S.r.l.) under Article 2476 of the Civil Code: this is typically the case for family-owned public limited companies or those with a limited number of shareholders;
• in co-operative societies, under the same conditions. By Order No. 23727 of 21 July 2026, the Court of Cassation overturned its previous contrary position, emphasising that the law (Article 1, paragraph 239, Law No. 205/2017) excludes from subordination only the ‘co-operative loan’ of co-operative members. Here too, the company’s organisational structure is a key factor, to be assessed on a case-by-case basis.

The new development: subordination extends to bonds

The most innovative aspect of the judgement concerns the bond issue. According to some legal scholars and case law, subordination would be incompatible with the rules governing bonds (Articles 2410 et seq. of the Civil Code), because the bond issue:

• is of a general and impersonal nature;
• is designed to be negotiable: the claim embodied in the security can be easily transferred to third parties and traded on the market.

The Court of Appeal overcame these objections with three arguments:

• the circulation of the security is not an obstacle: even in ordinary loans, subordination is an inherent characteristic of the claim, which accompanies it in the event of assignment and is enforceable against the purchaser;
• in closely held public limited companies (S.p.A.), the use of a bond issue may be a means of circumventing the rule, as it allows the claim to be disposed of more easily should the crisis worsen;
• the sole exception: subordination is excluded, on grounds of structural incompatibility, only for bonds which, upon maturity, must be mandatorily converted into shares (so-called ‘mandatory convertible’ bonds), in which there is no cash redemption.

The Court of Appeal thus held that a bond issue may be subject to subordination if, at the date of subscription, the subscriber was in a position to be aware of the company’s financial imbalance. This occurs, for example, when the bonds are subscribed to by persons who control the company, either alone or together with others, and are involved in its management. In the case under consideration, it was decisive that the bondholder was the managing director of the issuer and a shareholder in one of the companies holding the entire share capital.

What directors and investors should do

The Court of Appeal’s judgement recognised that the concept of subordination is compatible with bonds subscribed to by directors, without, however, establishing any automatic rule.

The status of director does not, in itself, equate to that of a financing shareholder: Article 2467 of the Civil Code presupposes, in fact, participation in the business risk or, at the very least, access to information and powers analogous to those of a shareholder in a limited liability company (S.r.l.).

The investigation, therefore, cannot be limited to the formal ownership of shareholdings: it is necessary to ascertain the possible existence of indirect shareholdings, positions in the shareholder companies, family ties and involvement in financing decisions such as to place the director at the centre of the company’s ownership and management structure.

The position of an external subscriber, however, is different; for such a person, mere occasional knowledge of the crisis is not sufficient: it must be verified whether their position actually afforded them access to the information and powers that justify the subordination.

Finally, anyone intending to purchase bonds issued by closely held public limited companies (S.p.A.) in financial difficulty should carefully check who originally subscribed to them and obtain a specific warranty from the assignor: subordination, being an inherent characteristic of the claim, is also enforceable against the assignee.