What is the Business Crisis


Let’s deepen the meaning of this term and the reference legislation

What is the Business Crisis

The Business Crisis is governed by Legislative Decree n. 14/2019 (amended by Legislative Decree n. 147/2020) and is characterized by an “economic-financial imbalance” which suggests a probable insolvency on the part of the debtor company. The “New Code of Business Crisis and Insolvency” will come into force starting from 1 September 2021 (although at the present date a postponement is expected to Spring 2022) and will replace the current Bankruptcy Law (Royal Decree 267/42): among the most important innovations is the mostly desire to aim at the “rescue” of companies and give them continuity (the term “Bankruptcy” will be replaced by “Judicial Liquidation”).

The Indicators for Assessing the Business Crisis

The indicators for “Business Crisis” are in Art. 13 of the Legislative Decree n. 14/2019 and are represented by:

  1. Non-Sustainability of Debts for the Next 6 Months
  2. Prejudice to Business Continuity in the Current Financial Year or at least in the following 6 Months
  3. Significant and Repeated Payment Delays (based on the provisions of Art. 24 of Legislative Decree n. 14/2019).

In relation to this last point, Art. 24 refers to “payables for salaries overdue for at least sixty days for an amount equal to more than half of the total monthly amount of salaries”; to “trade payables overdue for at least one hundred and twenty days for an amount greater than that of unexpired payables” and the exceeding, in the last approved financial statements, or in any case for more than three months, of the indices in Points 1. and 2. of Art . 13.

The Main Warning Indicators for the Business Crisis

The National Council of Chartered Accountants and Accounting Experts (C.N.D.C.E.C.) determined them in:

  1. Negative Net Equity: this circumstance therefore constitutes an prejudice to the business continuity, as long as the losses have not been covered and the share capital brought back at least to the legal limit.
  2. DSCR (Debt Service Coverage Ratio) at 5 Months Less than 1: it is calculated as the ratio between the free cash flows expected in the following 6 months that are available for the repayment of the same debts expected.

Establishment of the O.C.R.I. (Corporate Crisis Composition Body)

This Body must proceed with the appointment of a Board of 3 Experts from among the Registered Subjects appointed by the Judicial Authority for the Management and Control Functions in the Procedures referred to in the Crisis and Insolvency Code (of which 1 designated ‘Representative Association of the Debtor’s Reference Sector).