Early stage approach discussed during DCRI PG in Berlin

During DCRI Practice Group in Berlin we discussed about how to strengthen early stage approach. Alert procedures have been used for years in some of European Countries, and are about to come into force in Italy as well. They are, or shoud be, a potentially efficient legal path to face and solve financial crisis on early stage basis. In Italy we have less than 20% of companies suffering financial problems being able to file a creditor composition plan application, or a restructuring agreement court registration. Just 40% of those company goes successfully through the whole court procedure, 60% abort their plans and convert their approach into bankruptcy. Finally just 13% of succeeding composition plans are still active after three years. Globally, just 5 troubled companies out of a thousand are able to get definitively our from their problems. And situation is not that different throughout Europe. Two main reasons for this dramatic situation. First of all, entrepreneurs don’t usually look at their financial problems, just thinking the future itself will sort them out automatically, which is not. So we have a cultural issue. On other hand advisors focus normally on the legal structure of the plan, and forgive to fix the real company engine, which is the business model.

What is expected to arrive in Italy is a new option, called alert procedure. It is not new in Europe, given it has been working for sixty years or more in France, but the framework seems to be tailored on Italian companies. It provides a confidential approach. As soon as the procedure is activated, by the company or her auditors, local Chamber of Commerce provides three advisors selected from a dedicated list, which should include only professionals focused on distressed companies restarting plans. Here comes the point: it is a great opportunity for Italian advisors to develop a new approach, including financial, legal, but most of all strategic and counselling capabilities. The company will benefit of a protected six months period, to verify with the assistance of appointed advisors how to sort the problem out. If advisors will be able to investigate the real problem, offering the company a feasible solution, the trend of successful restructuring plans will rear up for sure.

See attached presentation for some more info.