Reform of business crisis and insolvency
Provides companies with new tools for the early detection of problems, with the aim of ensuring business continuity
What does it change with the new rules?
With the Business Crisis decree, the alert procedure with the OCRI (Crisis Composition Body) has been established and the new Code of Crisis of the Company Crisis and Insolvency has been created. Italy conforms to the standards of other European countries, which seek to develop tools to anticipate the emergence of the crisis and limit the worsening of corporate crises. The reform is meant to avoid the delay in perceiving the signs of crisis of a company, which can then lead to a state of irreversible crisis. The Code has the goal of reforming the discipline of the competitive procedures, with two main purposes:
- put in place an early diagnosis of companies’ problems;
- to safeguard the entrepreneurial capacity of those facing a business failure.
Conference about the new
Corporate Crisis Code
Let’s clarify some things
What changes does the reform of the bankruptcy law include?
- the term bankruptcy is replaced by the expression ‘judicial liquidation”, same as in other European countries, such as France or Spain, in order to avoid the social and personal shame associated with the word ‘bankrupted’ or ‘failed’;
- an alert system is introduced. It allows the rapid emergence of the crisis so to achieve a view of the recovery of the company. The continuity of the company is our priority;
- priority shall be given, among the crisis and insolvency management instruments, to alternative procedures to those of judicial execution;
- the rules on competition are simplified;
- the Ministry of Justice establishes a list of people suitable to carry out management or control jobs on behalf of the Tribunal in insolvency proceedings, with an indication of the professional experience and independence requirements necessary for registration;
So basically what does it change for companies?
Companies will have to equip themselves with systems capable of detecting signals of corporate crisis in order to allow a rapid emergence of the crisis situation, The entrepreneur will have to adopt an adequate organizational structure for the timely detection of the state of crisis and the right course of action. All companies will therefore have to equip themselves with information systems and appropriate platforms in order to be able to control cash flow management, a budget and a business plan that allow to detect any signs of crisis and set a strategy to restore the economic and financial equilibrium of your company, including a recovery plan. The legislator has therefore grasped the need to intervene at the very first signs of criticality. This amendment, inserted as an amendment to an article of the Civil Code, is already in place.
When does he control board become compulsory?
Business Crisis decree requires the appointment of the supervisory body or auditor, if the company has limited or cooperative liability. When in the last two consecutive years preceding at least one of the following three limits is exceeded, or:
- the total assets of the company are more than EUR 4 million;
- sales and performance revenues exceed EUR 4 million;
- The average number of employees employed during the year exceeds 20.
There are therefore more cases of compulsory nomination of the control board. The news of the reform will directly involve the many SRL and cooperatives that, after the modifications introduced to article 2477 of the Civil Code relative to the obligation of appointment of the trade-union college and to the statutory audit of the accounts, will also be called to modify statutes or instruments of incorporation
If a difficult situation arises for the company, what should the entrepreneur do?
In case of troubles of the firm, according to the decree of the Bankruptcy Law, the entrepreneur must “take action for the adoption and implementation of one of the instruments provided for in the framework for overcoming the crisis and restoring business continuity”. The state of crisis is defined as: “the state of economic and financial difficulty which makes the insolvency of the debtor likely, or (for firms) an insufficient prospective cash flow to meet the planned obligations on a regular basis”.
What happens if the entrepreneur cannot bring the firm back into stability by himself?
What is OCRI?
- receive reports on the firm’s justified evidence of crisis, as communicated by the corporate audit bodies or qualified public creditors (Revenue Agency; INPS; Recovery Agent) or even directly from the entrepreneur in trouble
- managing the crisis situation by trying to resolve the financial imbalance in a very short time (90/180 days);
The alert procedure will last three/six months to reach an agreement with its creditors. If the agreement is not reached and the state of crisis of the company is revealed, OCRI invites the company to open one of the traditional insolvency proceedings. In some specific cases (such as if the entrepreneur does not open an executive procedure after the negative outcome of the crisis organism) the OCRI will be able to report to the P.M.
Any other doubts?
Resources and Tools
Studio Penta will stand by you in this transition phase
Business continuity assumes a central role with the new reform: companies will have to equip themselves of systems that allow it to monitor the prospective course for at least the following twelve months.
The main tool used to monitor business continuity and to highlight the state of economic and financial difficulty that makes insolvency likely is the analysis of the adequacy of prospective cash flows, or the ability to regularly meet planned bonds.
The available means, also called cash flow, is used to indicate the positive or negative variations of liquidity as a result of the management, with reference to a certain period of time: it is in fact the reconstruction of the monetary flows, therefore the difference between all the income and the monetary expenditures of a society.
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