As the COVID-19 epidemic is expanding, in order to help enterprises to (or, however, limit the damages caused by) the consequent economic crisis, our Government fixed a six months adjournment for the entry into force of the reporting obligations set by the new Code of Company Distress and Insolvency.
For bankrupt prevention purposes, Articles 14 and 15 of Legislative Decree n. 14/2019 provide specific reporting obligations about the occurrence of indexes that may reasonably imply the upcoming crisis. Statutory and independent auditors are subject to such obligations, whenever they envisage the occurrence of situations of economic and financial disequilibrium and/or of risk for the business continuity (so-called internal reports). Public creditors (i.e. the Revenue Agency, the National Institute for Social Security and the Collection Agent), are also subject to the same obligations whenever the companies exceeded specific thresholds (so-called external reports) about debts for VAT, social security burden and tax to be recovered.
The reports at issue shall be primarily sent to corporate managing bodies (Art. 14, paragraph 1 e 15, paragraph 1 Legislative Decree n. 14/2019), and, afterwards, should the manager not to adopt the necessary measures to overcome the crisis, to company crisis settlement bodies (Art. 14, paragraph 2 e 15, paragraph 4 Legislative Decree n. 14/2019).
As mentioned, under Art. 11 of Law Decree n. 9/2020, the reporting obligations provided for in Art. 14, paragraph 2, and 15 of Legislative Decree n. 14/2019 will enter into force from 15th February 2021 (and not from 15th August 2020), without territorial and/or size restrictions.
This means that, from 15th August 2020, when the most part of Legislative Decree n. 14/2019 provisions shall enter into force, statutory and indipendent auditors will be required to report only to corporate managing bodies, while no report shall have to be sent to company crisis settlement bodies before 15th February 2021. Instead, the abovementioned public creditors will be required to report to both corporate managing bodies and company crisis settlement bodies only from 15th February 2021 (such a discrepancy is probably due to a mere oversight, as no other apparent reason can be found).
Moreover, as detailed in the explanatory memorandum to the draft law converting Decree Law n. 9/2020, the postponement of the entry into force of the report obligation provided for in Art. 14, paragraph 2 of Legislative Decree n. 14/2019, shall inevitably lead also to the postponement of the entry into force of the exemption from liability of statutory auditors and indipendent auditors provided for in the paragraph 3 of the same article.
Indeed, said paragraph 3 provides the exemption from several liabilities of statutory and indipendent auditors for every negative consequences arising from actions and omissions of corporate managing bodies in the case that:
- statutory and indipendent auditors early report the state of crisis to corporate managing bodies;
- negative consequences do not arise from decisions taken before the report;
- statutory and indipendent auditors early report the state of crisis to company crisis settlement bodies when corporate managing bodies do not adopt the due measures in order to overcome the crisis.
Should also only one of the conditions above not be met (the last one in compliance with Art. 11 of Law Decree n. 9/2020), the liability exemption shall not be effective.
No rule is set for the case that statutory and independent auditors report the state of crisis to company crisis settlement bodies even during the period when they are not legally required to do so (from 15th August 2020 to 15th February 2021).
Would the exemption from liability be still ineffective?
The explanatory memorandum to the draft law converting Decree Law n. 9/2020 seems to opt for a general ineffectiveness of the liability exemption until 15th February 2021. This probably reflects the willingness of the Government to grant:
- enterprises with a longer period to get ready for the new prevention and reporting models, taking into consideration the highly troubled times we are currently going through, avoiding additional severe obligations for realities that will find themselves in huge difficulty because of the COVID-19 epidemic;
- company crisis settlement bodies with a longer period in order to avoid congestion upon initial application.
Indeed, if the abovementioned exemption from liability was effective, statutory and independent auditors would probably intend to benefit, reporting the state of crisis to company crisis settlement bodies even in the absence of a specific obligation. Nevertheless, the possible consequences (such as the opening of bankruptcy procedures) would be in conflict with the aim pursued by the Government to protect the entrepreneurs that are going through hard times.
It should be noted that on 13th February 2020 the Council of Ministers had already approved, during a preliminary examination, an emending decree to the Code of Company Distress and Insolvency, according to which the reporting obligations had already been postponed to 15th February 2021, but only for companies that do not exceed the thresholds set out in Art. 2477 of the Civil Code during the last two years, namely:
– total balance sheet assets of 4 millions Euros;
– sales and service revenues of 4 millions Euros;
– average number of employees during the financial year: 20.
On the contrary, the reporting obligations would had been operational from 15th August 2020 for all the other companies, as originally expected.
In the light of the global emergency caused by COVID-19, the Government has decided not to restrict the postponement of the entry into force of these report obligations to very small enterprises. Since the new provision introduced by Law Decree n. 9/2020 is of general scope, the abovementioned report obligations are postponed for all the enterprises subject to internal and external reports in compliance with Art. 12 Legislative Decree n. 14/2019, namely all entrepreneurs, with the exception of all big enterprises, groups of big dimension, companies with shares listed in regulated markets or held by the general public, as well as banking, finance, insurance and trust companies.
Since this is a government decree of urgency, we are therefore waiting for the decision of our Parliament, during the procedure for conversion of Decree n. 9/2020 into law, on whether to confirm or not the postponement of the entry into force of these report obligations for all small and medium-sized enterprises.
Author: Avv. Anna Tarasco
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