Much has already been written about appropriate organisational, administrative and accounting arrangements of the company, ever since the amendments made to Art. 2086 of the Italian Civil Codeby the Business Crisis and Insolvency Code (Legislative Decree 14/2019) have taken effect.
But if even Scuola Superiore della Magistratura (High School for the Judiciary), an institution of professional training and updating for the Magistrates, published on November 8 Essay No. 18 dedicated to ‘Organisational arrangements for companies’, then it means that the attention on this subject cannot wane!
Additionally, Assonime, which in Circular No. 27 of November 21 analysed ’The Corporates’ duties for Crisis Prevention and Management in the New Crisis Code‘, offers us the cue for a brief review of an essential topic, albeit understated in business culture.
An overview of appropriate organisational arrangements
The obligation to set up appropriate organisational arrangements is no news. Art. 2381 of the Civil Code, among the duties of the administrative body, already states that care must be taken of an ’organisational, administrative, and accounting structure … appropriate to the nature and the size of the company.’ This forecast, however, has proved to be unsuitable to promptly intercept the first indicators of a business crisis.
Therefore, Art. 2086 provides that the structure to be established must not only be appropriate to the nature and size of the company, but also capable of promptly detecting the first symptoms of a crisis and loss of business continuity.
This is a general duty, concerning any company, from which no businessperson can be exempted, as it has direct implications on the very survival of the company! Indeed, failure to do so, because of the ‘functionalisation’ of the arrangements to the timely detection of the crisis, constitutes a case of serious irregularity in management, deserving of judicial control measures, pursuant to Art. 2409 of the italian Civil Code, especially for companies in a situation of equilibrium, as opposed to those already in overt crisis.
Appropriate arrangements: from words to deeds
Operatively speaking, there are three types of arrangements that every businessperson should implement, in addition to verifying their adequacy and ability to detect business crisis warnings:
- organisational, which refers to the set of directives and procedures aimed at ensuring that the decision-making power is assigned and effectively exercised at an appropriate level of competence and responsibility, as well as providing for control procedures. Basically, a good starting point would be to have a clear and up-to-date organisational chart, a job description of tasks and responsibilities and an effective internal control system.
- administrative, which refers to the set of procedures aimed at ensuring the orderly performance of company activities and the individual phases into which they are divided. This is equivalent to establishing codified and shared procedures at the various corporate levels.
- accounting, linked to the timely recording of management facts. However, the timely updating of management facts is only a starting point: it is necessary to know how to interpret the data, relate them to one another, analyse profitability and liquidity indicators, and schedule the frequency of analyses.
Finally, it goes without saying that the set-up must be adapted to the company’s characteristics and size: no formula works for every case!Conclusions
Assonime’s recent publication suggests that the establishment of appropriate organisational arrangements, capable of detecting a business crisis at its earliest stages, is becoming a central theme in the management of businesses in Italy, with important implications for the responsibilities of administrative and supervisory authorities.
Moreover, the ferment in the Business Courts, right up to the substantial publication that Scuola Superiore della Magistratura dedicates to Organisational Arrangements of the Company, is a sign that corporate structures will have considerable impact in corporate and bankruptcy law disputes in the near future.
And what about your company? Does it have an appropriate organisational, administrative, and accounting structure? And what tools do you use to measure it?
Let’s talk about it together.