The new framework requirements of the Business Crisis and Insolvency Code: mere cost or opportunity?

By Prof. Marco Fasan 

Universit√† Ca' Foscari 

The Code of Business Crisis and Insolvency (CCII - Legislative Decree No. 14/2019) came into effect on July 15, 2022, after numerous postponements due to the Covid emergency.  

The Code, which replaces the entire pre-existing regulation of bankruptcy and insolvency proceedings with its 391 articles, provides companies with incentives and tools aimed at the early detection of business crisis, based on the assumption that the early diagnosis of the state of difficulty allows to overcome the crisis. Some examples are the requirement of adequate organizational, administrative and accounting frameworks and the discipline of negotiated crisis settlement. This is as necessary as it is ambitious, an achievement that requires a profound cultural evolution, especially for SMEs.  

According to Article 2086 of the Civil Code, updated - as early as March 2019 - by the CCII, "the entrepreneur, whether operating in corporate or collective form, has the duty to set up an organizational, administrative and accounting frameworks 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."  

Generally speaking, frameworks are adequate when they produce information flows that enable the director to make informed decisions. That means to have adequate knowledge of business risks. Upon closer examination, adequate frameworks are a necessary (but not sufficient) condition for complying with the duty to act in accordance with principles of proper administration. 

Specifically, the frameworks require the establishment of an organizational chart, job description, procedures, delegations of authority and powers of attorney (organizational frameworks). They require an information system and a planning and control system to govern the forward-looking dimension (administrative frameworks). They are based on a general and analytical accounting system adequately supported by accounting procedures (accounting frameworks). All oriented to risk management, according to the principles proper to internal control systems. 

Further guidance on the adequacy of the frameworks can be found in Article 3 paragraph 3 of CCII and in the Ministry of Justice's Executive Decree of 9/28/2021 (which provides a check list of the elements that must be found in order to qualify the framework as adequate). 

Some consider the reform and the requirement of adequate frameworks to be another manifestation of the thickening of the bureaucratic superstructure and a cost that will fall solely and exclusively on the enterprise.

Well, if the reform is perceived in such manner, they are surely right: the establishment of organizational, administrative and accounting frameworks will only represent a cost to the enterprise. If, on the other hand, the frameworks are designed and perceived (at every level of the organization) as an opportunity to enable more conscious managerial activity and to improve risk management, they can truly generate value and benefits, in amounts far greater than the costs.  

To fully grasp the potential of appropriate frameworks, however, it is necessary to go beyond the regulatory figure: they must be designed in such a way that enables not only the early detection of crisis but also the generation of long-term sustainable value. 

Contact information

Prof. Marco Fasan 

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