Finance

The New Corporate Crisis Code: The Control Figures and the Procedures

 

 

The business crisis is a very particular situation in which every type of business can be found during the entrepreneurial life.

In recent days this taboo expression has returned on everyone’s lips, due to the latest news presented by the government: the new Corporate Crisis and Insolvency Code, published in the Official Journal on February 14th.

There are in fact many innovations contained in this text, whose intent is precisely to help companies in the event of insolvency . The state of corporate crisis could in fact, in some cases, be avoided through the introduction of some figures and protective actions, which often allowed the rescue of companies that had introduced them.

The new company code therefore contains a series of provisions that concern, in addition to the definition of business crisis, the obligation of statutory audit and the obligation to check the indices as the main measures to counter the negative trend.

It is therefore a situation that can concern you closely, in any case, it is always a good idea to keep up to date with sector news, especially legislative ones.

 

The new code on business crisis: the control figures and the procedures to follow for companies

 

The new code on business crisis: the control figures and the procedures to follow for companies

 

The Council of Ministers has reached this important decision on January 10, when it approved the legislative decree that deals with establishing strict alert procedures to be followed.

Before understanding what are the measures introduced to safeguard companies, it is good to decode the definition of business crisis that the decree itself explains.

The definition of business crisis

 

We therefore define the business crisis as a situation of potential insolvency, or inability to meet its obligations. It is therefore the lack of situations of economic and financial equilibrium.

Based on this concept, over the years there have been a series of legislative measures aimed at activating certain instruments. An example is the laws of 1942, which regulated bankruptcy, and the European regulation of 2005.

From the business point of view, however, the business crisis has different definitions. Without going into detail, suffice it to say that it can also vary according to its cause and company structure.

 

The new company code

 

The new company code

 

We have already talked about this last week, when we discussed the new obligation of statutory audit for the Srls. The decree will have two different entry times. The measures relating to crisis control institutions will come into effect only in 18 months. Those that provide concrete and immediate help for management will be active in 9 months.

We remind you that the obligation to introduce the statutory auditor for the Srl exists when only one of these conditions is present:

  • Total assets in the balance sheet exceeding 2 million euros;
  • Total sales revenues exceeding 2 million euros;
  • Have 10 employees on average during the period under consideration.

The entire code is composed of as many as 391 articles, which go into great detail both the definition and its concrete applications: in particular, we will no longer talk about business failure but rather judicial liquidation, in the wake of what has already been done in France and in Spain. The term should go beyond the derogatory meaning of the term failure and therefore of the “failed” entrepreneur.

 

Measures

 

Measures

 

We have therefore become familiar with the definitions of business crisis. But, apart from the terminologies, what governs the new business code ?

We have said that it is essentially the introduction of figures whose role is to supervise the company trend and promptly identify crisis situations.

In practice, this essentially translates into the obligation to check indexes.

Different types of companies, such as SpAs, were already subject to the obligation. The novelty concerns the Srl instead, which historically have always been released. The introduction of the obligation of legal audit also for limited liability companies should prevent and avoid situations of insolvency risk .

What is activated is therefore the procedure for recomposing the business crisis:

  • The statutory auditor monitors company performance
  • The moment he identifies a potential crisis situation, he reports to the internal administration
  • If this does not implement any provision within 60 days, the auditor makes an external report to OCRI. This is the organism of composition of the business crisis, and there is one for each type of activity. Its members can also be external consultants of the company itself, but they must be enrolled in a register.

The indices

 

The legal auditor, in order to be able to carry out his work effectively, needs indicators that serve as a yardstick for the potential crisis situation and that of insolvency. These should, according to the decree, be drawn up by the National Council of Chartered Accountants and Auditors, and updated every three years.

The indices must obviously be developed according to the reference sector of work: for this reason, their processing will probably take some time. Furthermore, the economic situation is constantly changing: for this reason, the indices must be updated at the latest every three years.

The objective, as is clear, is the protection of business continuity, which can only be achieved through the establishment of an internal control system, capable of averting the business crisis.

We have said that the indices are not contained in the decree, but must instead be processed by an external body. In reality, however, indexes already existed, and they were those contained in the law 155 of 2017. However, these were not considered adequate to the new company code, since they did not provide a clear picture on the conditions of possible insolvency of the company.

The new law therefore entrusts the CNDCEC with the task of drawing up the indices for each economic activity according to the ISTAT classifications. The problem, however, lies in relativity: although the indexes elaborated can be corrected, there is a need for a (human) figure that carries out a general control, capable of having an overall view.

What tools to use?

 

The indexes and the auditor certainly cannot do everything by themselves. They must be based on other tools, which can be used to save your company.

One of these is certainly the budget. Drafted on a monthly, quarterly or even annual basis, the financial statements can be a very valuable aid for keeping company progress constantly under control.

It is still early to make judgments on the effectiveness of the decree, but it certainly seems a step forward in the protection of businesses and entrepreneurs.

Needless to say, having tools in place to keep the indices of the corporate crisis under control will help to avoid noticing too late of any problems that would trigger the reports.

A useful tool, I would say by now indispensable, for every entrepreneur, is precisely the “Company Dashboard” which will be set with the sector and company parameters in order to provide real-time control and autonomy.

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