Adequate Organisational Structures Under the Italian Insolvency and Business Crisis Code: Mere Cost or Opportunity?
By Prof. Marco Fasan
Ca’ Foscari University of Venice
The Italian Insolvency and Business Crisis Code (CCII – Legislative Decree No. 14/2019) entered into force on 15 July 2022 after several postponements caused by the Covid-19 emergency.
The Code, consisting of 391 articles and replacing the previous framework governing insolvency proceedings, provides businesses with incentives and tools aimed at the early detection of financial distress. The underlying principle is that timely diagnosis of difficulties increases the chances of overcoming a crisis.
Within this framework, particular importance is given to the requirement for adequate organisational, administrative and accounting structures, as well as to the negotiated settlement procedure for business crises. The objective is both necessary and ambitious and requires a significant cultural shift, especially among SMEs.
Article 2086 of the Italian Civil Code, amended in 2019 by the CCII, provides that entrepreneurs operating through corporate or collective structures have a duty to establish organisational, administrative and accounting arrangements appropriate to the nature and size of the business, including for the timely detection of crises and threats to business continuity.
In general terms, organisational structures are considered adequate when they generate information flows enabling directors to make informed decisions and properly assess business risks. Adequate structures are therefore a necessary—though not sufficient—condition for complying with the principles of sound management.
Organisational structures require clearly defined organisational charts, job descriptions, procedures, delegations and powers of attorney. Administrative structures require information systems and planning and control tools capable of supporting a forward-looking approach. Accounting structures rely on suitable general and management accounting systems supported by effective accounting procedures.
All of these elements should be oriented towards risk management in accordance with the principles of internal control systems.
Further guidance on adequacy can be found in Article 3(3) of the CCII and in the Decree of the Italian Ministry of Justice dated 28 September 2021, which includes a checklist of elements required to qualify organisational structures as adequate.
Some view the reform and the requirement for adequate organisational structures as yet another layer of bureaucracy whose costs are borne entirely by businesses. If approached in this way, such criticism may appear justified, as the implementation of organisational, administrative and accounting systems will simply represent an additional cost.
However, if these structures are designed and embraced at every organisational level as tools for better decision-making and improved risk management, they can generate significant value and benefits far exceeding their implementation costs.
To fully exploit their potential, adequate organisational structures must go beyond mere regulatory compliance. They should be designed not only to facilitate the early detection of crises, but also to support the creation of sustainable long-term value.
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