Company Crisis: The importance of data

With the entry into force of the Code for Business Crisis and Insolvency, the concept of business crisis has been revolutionised, moving from a previous system hinged essentially on satisfying creditors to a new approach that aims to safeguard business activity and business continuity, to allow all companies that have the capacity and possibility to remain on the market.

The new rules place particular emphasis on the fact that any company should be able to anticipate a possible state of crisis and intervene promptly to reorganise it, leaving de facto judicial liquidation as a last resort.

In new regulatory obligations

Article 3 of Legislative Decree 14/2019 (Adequacy of measures and arrangements in function of the timely detection of business crisis) requires the individual entrepreneur to adopt “appropriate measures to promptly detect the state of crisis and to take without delay the necessary initiatives to cope with it” and the collective entrepreneur to “establish an adequate organisational, administrative and accounting structure in accordance with Article 2086 of the Italian Civil Code, for the purpose of the timely detection of the state of crisis and the taking of appropriate initiatives“.

Article 2086 of the Civil Code has been amended to provide that ‘an entrepreneur operating in a corporate or collective form has the duty to establish an organisational, administrative and accounting structure appropriate to the nature and size of the business, also with a view to the timely detection of the business crisis and the loss of business continuity, and to take action without delay for the adoption and implementation of one of the instruments provided by the law for overcoming the crisis and recovering business continuity‘.

The managing bodies of companies and the entrepreneur in general, must therefore take care of the adequacy of the structures, and in particular, the board of directors is responsible for assessing this adequacy, while the auditors are responsible for supervising it.

According to the Court of Cagliari in its judgment no. 188/2021 of 19 January 2022, in which it sets out important guidelines for the verification of such inadequacy, the absence of an adequate organisational structure constitutes a serious irregularity that must be immediately rectified and may lead to the revocation of the administrative body and the appointment of a judicial administrator.

The aforementioned judgement is important in that it focuses attention on the fact that, since such arrangements are functional to prevent the company from facing a crisis, the breach of this obligation is more serious for a company in a situation of financial equilibrium, since it is precisely in such a physiological state that it is necessary to intervene in order to effectively prepare organisational, accounting and administrative measures aimed at intercepting the signs of crisis in a timely manner, thus enabling the company to take the appropriate initiatives.

It will therefore be necessary for every company to put in place a serious planning, programming and management control activity, as a component of the broader administrative-accounting system to meet this requirement. This activity is represented by a set of tools, processes and roles, aimed at favouring behaviours that are in line with the achievement of corporate objectives, facilitating the production of information necessary to make management choices.

The mere purchase of software and management software, if not updated with data entry in a timely manner, has no effect, nor does it cure any breach.

It will therefore be necessary to proceed with a careful analysis of the company, its structure in concrete terms, and on the basis of the concrete reality of the same, to intervene on the introduction of adequate administrative accounting structures, through the introduction of analytical and managerial accounting with ad hoc budget forecasts, production of interim economic, financial and equity situations, obtained starting from the accounting balances suitably integrated with the adjustment entries, to allow the evaluation of the company’s state of health at a given instant, and to allow the evaluation of the company’s continuity.

The core of this activity obviously lies in the data: the collection and availability of up-to-date data, both accounting and non-accounting, and making them available to an ‘interpreter’ in a timely manner, who can perform useful evaluations, is the true strength of a healthy business.

It is clear, therefore, that the subject of corporate crisis is also part of the so-called integrated compliance necessary for the successful operation of any business.

Integrated compliance is, in fact, the set of rules, procedures and organisational structures aimed at ensuring sound business conduct that is fair and consistent with objectives.

The Business Crisis and Insolvency Code, the Organisational and Management Model pursuant to Legislative Decree 231/2001, the legislation on the processing of personal data (so-called privacy) and the legislation on anti-money laundering, for example, are all disciplines designed with a view to prevention that must not only ‘coexist’ but ‘speak the same language’.

The correct collection of data and its proper management is therefore essential for every company.

Downloading pre-printed templates from the web or purchasing management software that is not maintained by anyone within the company will not prove that the company has adequate organisational arrangements and could lead to convictions, even heavy ones, for personal liability of the entrepreneur and directors, and obviously will not prevent a crisis from emerging.

While for large companies such an activity is economically viable, for small companies or the individual entrepreneur such a challenge proves to be arduous, as such an adjustment could cost in economic terms such outlays as to nullify the effort (and paradoxically trigger a crisis).

For small businesses, it will therefore be necessary to educate the entrepreneur by creating ad hoc measures with the available resources.

Can the use of artificial intelligence make up for the financial shortages of small companies? Is it possible to imagine integrated compliance simplification through blockchain technology?

What is certain, for the time being, is that the legislator does not keep pace with technological development and that the reconciliation of the different disciplines is increasingly left to the interpreters and lawyers, who must accompany the entrepreneur every step of the way.