Financial restructuring of companies after Covid

The Covid-19 pandemic and the restrictive measures adopted starting from March 2020 in order to limit its spreading led to a social and economic shock, both at the domestic and international level, having important consequences on the whole economic context and implying for businesses a reduction in turnover, with significant economic and financial effects, even though at different levels, depending on the industry and on the specific business characteristics.

To deal with this situation, the Government adopted various measures to contain the impact of the crisis and to reduce, at least in 2020 and 2021, the risk of insolvency. These measures concerned the containment of business costs through an extension of layoff bonuses and a support to liquidity through non-repayable transfers, postponement of tax social security contributions due, as well as a moratorium on bank loans.

Following these measures, bank credit to companies increased at a high pace in 2020, also thanks to Italy's Guarantee Fund for SMEs: the growth rate of loans granted to businesses reached 8.6 percent, against a substantial stability in the three-year period 2017-2019. All the above measures will be inevitably – though gradually – reviewed and limited, given a hoped return to a normalized economic situation – also thanks to the ongoing vaccination plan

Once the current critical situation ends, the economic consequences of the Covid-19 pandemic will determine a higher debt for businesses, implying an impact on their financial situation and their creditworthiness, as well as on their self-financing capacity and to make investment in the post-crisis phase.

In such a context, considered the termination of bank moratoriums, currently established at 30 June 2021 (even though there are some proposals to extend them at least up to 31 December), many companies will need to sharply and quickly adopt some measures to restructure their financial situation. Obviously, the nature and instruments to implement such restructuring actions will be different, depending on the health conditions of each company.

Those companies that were less impacted by the economic and financial crisis generated by the pandemic and whose wealth/financial situation is still acceptable will need to intervene on their financial structure through ad hoc actions coordinated by expert advisors who can support them in normalizing their situation in the medium term.

For some companies, an important instrument can also be the opportunity offered by the resources available within the Next Generation EU programme, formalized in the Italian Piano Nazionale di Ripresa e Resilienza (PNRR – recovery and resilience national plan), recently presented by the Italian Government to the EU. In fact, it is clear that besides an important general drive to economic growth, the PNRR will have a sharper and more direct impact for those companies operating in those industries concerned by the plan (such as, for example, investment in infrastructure).

Other companies, which suffered a more serious wealth and financial impact, but which are showing clear recovery signs – as regards both their activity and their growth perspective – will need to base their restructuring on insolvency or non-insolvency agreements with their creditors, allowing them to continue their activity.

Moreover, it must be specified that the timing of current insolvency procedures – also in the light of the instructions provided by the Italian code of business crisis that will come into force in September 2021 – is not compatible with the quick times required by the situation, or, if compatible (such as debt restructuring procedures), they are usually not very much usable by many struggling companies, given the fragmented structure of their creditor base.

Over the next months, Italian businesses will have to face an important challenge, requiring – regardless of the particular instrument used – a quick execution and a clear action plan, also through the support by external advisors; otherwise, the going concern would be threatened, implying the risk of exit from the market.