Gabriele Felici
16 Jun 2020
Starting from next semester, all companies – both those that already showed signs of crisis before the pandemic and those who started having difficulties following the lockdown – will have to deal with debt management and, particularly, with the payment of overdue debts.
This implies the need to adopt a strategic approach and subsequently implement an economic and financial planning, as well as the need to search for, evaluate and select the most appropriate technical, financial and regulatory instruments to deal with this difficult challenge in the best way possible, especially in such a deteriorated situation. In this context, the role of advisors in creating a dialogue with the market and with financial intermediaries is more than ever crucial for a company.
The pandemic emergency due to the spread of Covid-19 virus has caused serious economic and social effects at a global level, so that it is considered as one of the most serious economic shocks of the period after World War II. Moreover, in many countries, including Italy, it has affected a situation that was already exhausted and had not yet recovered completely from the recessions of 2008-2009 and 2012-2013.
In this difficult, sudden and unexpected situation, the Government has introduced measures to ensure the going concern of companies, especially after the suspension of production activities (in particular, under Law Decree no. 23/2020, so-called “Liquidità” decree).
Among the main actions taken, there are those providing financial support (moratoriums on bank loans, suspension of payments, guarantees to access credit and loans), those concerning the corporate and civil code regulation (reduction of share capital, preparation of financial statements and shareholders’ loans to companies), and those concerning the corporate crisis regulation (deferral of the coming into force of the corporate crisis and insolvency code, extension of terms for the conclusion of compositions with creditors and of restructuring agreements and the stoppage of bankruptcy petitions).
Actions taken so far are aimed to specifically face this extreme emergency situation; however, despite the emergency, it is important to keep an overall and, most of all, a prospective and peripheral vision, as it is necessary to grant aids to let businesses recover strength and to lead companies in crisis through insolvency procedures that do not paralyse resources.
In such a context, instruments currently available are restructuring agreements and approved recovery plans (the latter could be a new way to access emergency liquidity), which could assume different characteristics, more consistent with the current situation; they presume an underlying relation with financial intermediaries and, based on the indications of the Bank of Italy and A.B.I. (Italian Bank Association), their virtuous application cannot be excluded.
Given this specific need to implement alternative measures that are really supporting for businesses and that have a holistic approach, despite the temporary situation, I believe that it is necessary to:
In particular, while banks cannot act against defaulting companies up to 30 September 2020, following the moratorium under art. 56 of Law Decree no. 18/2020 (so-called “Cura Italia”), starting from 1st July, creditors will have some possibilities to potentially attack those companies that have not settled their outstanding debts. Therefore, it is clear that in semester 2, 2020, payment deadlines, which have only been postponed and suspended, will have to be dealt with and managed, implementing a strategy that, starting from a careful viability analysis, allows the identification of the most appropriate instruments among those available.
In this directions, some operating solutions seem to emerge, either from further and proper law provisions, or from the recent conversion of Law Decree no. 23/2020, so-called “Liquidità” decree, into Law no. 40 dated 5 June 2020 (Official Gazette no. 143 dated 6 June 2020).
Among the many amendments and integrations introduced during the conversion, the most relevant ones concern (i) the self-declaration to speed up the issue of loans by the State and (ii) the possibility to proceed with the early voluntary arrangement with creditors also following an approved recovery plan.
New article 1-bis, added to the law decree after its conversion, has introduced the obligation to present a self-declaration in case of new loan applications guaranteed by SACE (Italian State-owned company operating in the financial and insurance sector and specialised in particular in credit insurance) and Fondo PMI (guarantee provision for SMEs), through which the owner or the legal representative of the applying company states, under their responsibility, that:
Such provisions apply also to self-employed subjects carrying out a professional activity, also as an association.
The regulation limits the liability of the institution that issues loans: once they receive the self-declaration, banks will only have to comply with the fulfilments provided under the anti-money laundering regulation, while they do not have to carry out further investigations besides a formal verification of the declared assertions. The introduction of this self-declaration in lieu of affidavit should simplify and speed up bank inspections, accelerating the issue of loans.
Some believe [2] that this instrument (self-declaration of the health status of the company) could be further enhanced in case of actions to support the going concern, providing the possibility to register it with the Companies’ Register, together with a declaration of the board of statutory auditors – if any – or of an independent professional (meeting the requirements under art. 67 of Bankruptcy Law) confirming that indicated information is true and that, subsequently, injunctions against the company cannot be temporarily enforced any more.
Such a provision, in fact, could represent a useful support in terms of relations with financial intermediaries and would have a limited cost for the company and for the whole sector by acting on a system that is already available and by easing the burden for courts. This could offer a safeguard that is proportioned to the actual crisis-facing needs determined by the effects of the pandemic, disarming the most aggressive creditors.
New para.5-bis authorises those companies that obtain, by 31 December 2021, access to an early voluntary arrangement with creditors or to a restructuring agreement under art.182, para.7 of Bankruptcy Law, to file, within the terms already established by the judge, a waiver of the procedure, stating that an approved recovery plan has been prepared and published in the Companies’ Register, and filing the documents relevant to the publication. Once verified the correctness and regularity of the documentation, the court declares the stoppage of the appeal filed pursuant to art.161, para.6, or art.182-bis, para.7 of Bankruptcy Law.
Lastly, para. 5-ter excludes the applicability of para. 10 of art. 161 of Bankruptcy Law for the applications for arrangement with creditors filed up to 31 December 2020. Since the provisions under this article do not apply, even in case of a pending bankruptcy petition of a company applying for an early voluntary arrangement with creditors, the judge could grant a term for the filing of the application between 60 and 120 days (extendable by further 60 days).
Therefore, based on such provisions, there is the possibility to apply for the early voluntary arrangement with creditors for companies in crisis that could exploit the benefits of the arrangement with creditors without recurring to such instrument, so this solution will allow obtain more time to avoid the risk of bankruptcy. [3]
The debtor can suspend payments and survive by preparing a recovery plan under the supervision of the court and of the receiver, with the obligation to provide regular financial information.
This solution, in fact, meets some proposals made by corporate crisis law experts, though excluding the possibility to save companies in crisis through fully out-of-court procedures. It is a middle way, as companies will have to turn to courts, which will assess if the company is in crisis but without assessing if the crisis depends on the Covid-19 pandemic.
Companies that will choose this way will certainly be supervised by the receiver appointed by the court and will have to provide periodic documentation to inform on the actions taken to recover and to prove that no fraudulent activities have been carried out towards creditors.
[1] Fabiani M., Dalla crisi all’emergenza: strumenti e proposte anti-Covid al servizio della continuità d’impresa, Introduction, Centro Studi Diritto della Crisi e dell’Insolvenza, page 7.
[2] Abriani N. and Rinaldi P., Continuità aziendale, autodichiarazione sullo stato di salute dell’impresa, Il Sole 24 Ore, June 3 2020.
[3] Pollio M., Concordato in bianco per imprese in crisi, Italia Oggi, May 26 2020.
