Adequate arrangements: the new obligations for all companies

The Corporate Crisis and Insolvency Code, after a series of amendments and postponements mainly due to the uncertainty linked to the health emergency, has definitively entered into force in its entirety since 15 July 2022 .

The rules introduced by the Crisis Code are based on the assumption that all companies – regardless of their legal form and size, therefore also individual businesses – must adopt the minimum measures to intercept the signs of a possible crisis with adequate advance notice.

In particular, a series of measures have been introduced aimed at raising awareness among the administrative and control bodies of companies, obliging them to implement codified procedures for the timely detection of business crises.

For the first time, managing a business with a forward-looking approach – that is, with a prospective, predictive perspective –, from a good management practice that until now was the prerogative of a limited number of well-organised businesses, has now become a legal requirement .

Moving briefly to the regulatory level, it is worth reporting the 2nd paragraph of art. 2086 of the Civil Code, introduced by the Crisis Code:

"The entrepreneur, whether operating in corporate or collective form, has the duty to establish an organizational, administrative and accounting structure appropriate to the nature and size of the business, also in function of the timely detection of the business crisis and the loss of business continuity, as well as to take action without delay for the adoption and implementation of one of the tools provided for by the law for overcoming the crisis and recovering business continuity."

In this new formulation, therefore, art. 2086 imposes a series of obligations on the entrepreneur who operates in corporate or collective form:

	► the duty to establish an organizational, administrative and accounting structure appropriate to the nature and size of the company, also with a view to timely detection of the crisis
	► the duty to take action to adopt and implement one of the tools provided for by the law to overcome the crisis and recover business continuity
	► the obligation to maintain adequate organizational structures, periodically evaluating their adequacy

Although there is currently no precise indication of what the most appropriate structure is for a company, based on its nature and size, it is nevertheless necessary to act as soon as possible to avoid incurring heavy responsibilities .

It is normally considered that the objective imposed by art. 2086 of the Civil Code can be achieved through a series of minimum measures, to be adapted from time to time to the individual reality, such as:

	► the drafting of an organizational chart of the various company functions with the division of tasks and responsibilities
	► the establishment of adequate financial planning , with forecasts of collections and payments for at least the following 6 months
	► the preparation of budget forecasts (monthly budgets and three-year plans) to analyse deviations from the actual data
	► the calculation of patrimonial, economic and financial indicators , both actual and preventive
	► the analysis of the main risks that threaten the company and that may compromise business continuity in the future ( risk management )
	► monitoring of the exceeding of thresholds relating to any missed payments towards the so-called institutional creditors (INPS, INAIL, Revenue Agency, Collection Agency)
	► the formalization of internal reports to be drawn up periodically and to be kept on file also for evidentiary purposes
	► the use of the Balanced Scorecard as a tool for measuring the effectiveness of the company strategy by monitoring the main company KPIs

The activities to be implemented are different and must be adapted to the individual situation, taking into account the size of the company and the type of activity carried out.

In any case, even in smaller businesses – such as individual firms, which are also required to comply with art. 2086, 2nd paragraph – it is necessary to adopt adequate tools to support the aforementioned checks, such as:

	► the preparation of interim financial statements , with which the company will be able to verify the main deviations compared to the periodic situation relating to the corresponding period of the previous financial year
	► the construction of an economic budget , in which some fundamental quantities are highlighted for verifying the achievement of the management's income objectives (EBITDA and Operating Income)
	► the construction of a treasury budget , in which the company's expected financial income and expenditure in the next 6-12 months are represented, and its ability to meet the planned financial commitments is consequently tested

This last point is particularly relevant since the Crisis Code focuses heavily on the concept of debt sustainability , specifying that it must be carried out for at least the following 6 months; in this sense, the treasury budget allows the entrepreneur to check the trend of liquidity (or cash deficit) month by month and also allows the determination of one of the main and most used bankability indices of a company - the DSCR or Debt Service Coverage Ratio - which is not always easy to calculate if you do not have the appropriate skills and calculation tools.

It should also be emphasized that this legislative push towards a forward-looking approach must necessarily also be read in light of the entry into force - since 30 June 2021 - of the new EBA ( European Banking Authority ) guidelines , according to which banks will no longer assess creditworthiness on the basis of guarantees provided - now seen as a last resort to deal with the creditor's possible insolvency - but on credible and well-documented prospective economic-financial plans , which companies will therefore be required to present if they want to dialogue with the Bank.

This recent orientation of the banking system therefore only reinforces the new Crisis Code in underlining the importance, for all companies regardless of their shape and size, of making a radical change in their financial culture and adopting a series of measures aimed at implementing an organizational, administrative and accounting structure that can reasonably be considered adequate .

An approach such as the one proposed so far in this contribution is believed to allow, as a whole, to easily monitor the objectives to be achieved, the actions/corrections to be undertaken and the financial resources necessary to guarantee the continuity of the company, as well as to possibly support its growth .

Finally, it is worth remembering that if the administrators do not act in order to prepare the appropriate arrangements, there is a serious breach .

The directors themselves could be called to answer with their own assets for the failure to pay the company's debts if, having not adopted adequate structures, they were unable to monitor the arrival of the crisis and therefore did not act promptly to address it.

It is therefore more than appropriate that the entrepreneur, if he has not already done so, takes action quickly to carefully evaluate - together with a specialized Consultant - the actions to be undertaken and the minimum tools to be equipped with to comply with legal obligations; obligations that - we would like to emphasize - can also be read as a precious opportunity to thoroughly analyze one's business model and possibly review, with a more far-sighted logic, the assumptions and strategic choices that form its basis.