The approach to companies’ difficulties has (finally) changed over the past few years. These phases are now seen as an interlude from which we can find a way out: and this advance finds shape in the new Business and Insolvency Crisis Code, careful to recognise the signs of uncertainty and reduce harm to a minimum before arriving at irreversible situations.

Be aware of the signs

Italy is the land of the SME, a segment that represents over 90% of the total of the country’s active businesses. From design to fashion, passing by way of precision engineering and, obviously, food, the innovations that have made the country famous throughout the world have often been the result of dazzling insights. While at the heart of it all are businessmen capable of building giants which, in turn, rely on millions of small entities: subcontractors and other players along the chain; without their contribution the Made in Italy we know wouldn’t have been possible in the past and wouldn’t be possible now either.

Despite this, few businesses have been able to avoid the ups and downs of the market. The latter tackled willingly and creatively in the majority of cases, because enthusiasm works miracles, and this is shown by the latest forecasts that show Italy picking up faster than even France and Germany. But the charisma and energy typical of the great captains of industry can also lead to an underestimation of the risks involved.

A wave of UTPs

The health emergency has put the country’s economic fabric to a harsh test, and the consequences of the aftermath of the current slowdown (estimated at around 300 million euros by KPMG) are not at all clear. Financial analysts (PWC) are telling us that over the next 24 months non-performing loans could increase by around 60 – 100 billion euros.

The pill could end up being bitter for someone. “But managing a business well means acquiring the necessary courage to tackle both the difficulties along the road to growth and those swept along by the undertow”, states Fabio Bianchini, Head of UTP Management in neprix. With more than fifteen years’ experience in the finance world behind him, Bianchini has witnessed it all, the 2008 crash, the debt crisis and the excitement for the recovery. Now another turbulent phase is knocking at our door. And this has to be dealt with using different tools.

“The search for an agreed solution, an amicable way out, is preferable for both the creditor and the debtor”, Bianchini reflects. “Despite that, dialogue between the players is far too often based on contrast alone. And that’s wrong. In a system that ought to tend towards the virtuous, you have to know when to lay down your arms, to the extent that is possible, and work together in the search for answers. From credit recovery you have to move on to a view in which the management and generation of value become central”.

Difficult solutions

But the run up to the future must not be blind. Even in the bitcoin era. The past holds one or two lessons for us. “Once upon a time”, Bianchini stresses “universities taught you that finance was subordinate to the economy. With this, it was being emphasised that if the industrial basics of a business are good, then everything is possible, even spectacular turnarounds. On the other hand if the foundations are not solid, then action has to be taken, and quickly. History teaches us that whatever the case may be it doesn’t pay to wait. Over these past few years, what we have added to the traditional view is a different standpoint, that of an orderly liquidation””. At times a reorganisation of the processes is enough; at others, you have to take a backwards step and return to focussing on the core business: meaning on what you do best.

But the creditor must change his approach too:“A better enhancement of the value of a loan, for example, could be through the use of equity instruments””, Bianchini suggests, “especially when these enable businesses to continue as a going concern”.

And if that isn’t possible? “An orderly, and ideally rapid, process of asset liquidation ensures that all the stakeholders, and not just the creditors, achieve greater satisfaction”, Bianchini continues. “Whereas bankruptcy proceedings that drag on for a decade destroy value by definition”

The time factor is key for stopping an infection from spreading, in an industrial fabric characterised by numerous subcontractors, each with effectively only one customer. “The Business and Insolvency Crisis Code”, Bianchini stresses, “captures this aspect well by making a precise distinction between the two phases and enhancing the value of preventive monitoring”

Of course it is not always easy to assess a situation with clarity and honesty. “Like Nassim Nicholas Taleb’s black swans, economic cycles can heighten critical situations””, Bianchini concludes. “But the root of the problem is almost always to be found somewhere else. In this sense, talent and discipline are an increasingly unbreakable bond”.