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June 26, 2020

Relaunching the Economy – Phase 2: some legal and economic background

As Covid-19 eases its grip, we need to think about how to relaunch the economy, which has been devastated by the inevitable damage caused by the lockdown. Phase 2 requires Italy’s businesses to tackle some fundamental economic and legal issues. Without claiming to be comprehensive, a brief overview follows which touches on some of the most significant legal and economic problems accentuated by or that have arisen as a result of the new post-crisis scenarios.


Issue: the impossibility of actually going to a store and the fear of infection have radically sped up online purchases by consumers with the migration from physical to digital transactions. This has not only been true for the B2C sector but also for the B2B sector (e.g., the online platforms set up specifically to allow companies to interact virtually to replace trade fairs and show room events).

Legal aspects: from a strictly legal point of view, the requirements for the owners of e-commerce and online platforms include (i) preparing of suitable terms & conditions that regulate the use of the platform, (ii) complying with privacy regulations and the use of cookies. Moreover, if the user is a company (as is the case for the above online platform which replaces trade fairs), departures from the Consumer Code may apply.

Gestione dell’indebitamento bancario; cash-flow e liquidità

Issue: the drastic drop in turnover and the lack of on-time payments by debtors have obliged companies to apply for medium to long-term loans, including as provided for by government measures, to cover their temporary shortfalls and/or total shortage of liquidity (e.g., the Liquidity decree).

Legal aspects: although bank loans and borrowings allow a company to cover its temporary liquidity shortfalls, they also create issues for the directors in terms of their liability as they have generated additional debt for the company, even when the company falls into the “undertakings in difficulty” category as defined by Commission Regulation (EU) no. 651/2014 at the time it requested the financing, especially those SMEs that are often undercapitalised. With the exception of the special rules for innovative start-ups, excess bank debt may just mean that a company temporarily puts off its insolvency.

The lack of liquidity also led to numerous contract defaults which may, however, partly be covered by the emergency legislation and the initial judicial rulings on this issue.

Sottocapitalizzazione delle società

Issue: Italy’s business world is mostly made up of SMEs and family-run companies that are frequently undercapitalised as their owners often prefer to make shareholder loans rather than increasing their share capital and to distribute resources as dividends rather than reinjecting them into the company. The negative economic situation that has afflicted Italy since 2008 and has heightened as a result of the recent public health emergency has meant that many companies have made large losses that have eaten up their reserves and share capital and companies have not been able to absorb the inevitable losses incurred so far this year following the reopening of the economy in Phase 2.

Legal aspects: the Italian government’s recently-issued emergency legislation include major incentives in the form of tax breaks both for the beneficiary company and the transferor investor to encourage recapitalisation and financially shore up the SMEs.

Gestione delle perdite di esercizio

Issue: the government’s restrictive measures designed to halt the spreading of Covid-19 will inevitably mean lower turnovers in 2020, especially for the smaller companies, which will be unable to cover their operating costs and will make a loss for the year.

Legal aspects: if the loss affects the company’s equity, articles 2446 and 2447 of the Italian Civil Code require the directors immediately call a shareholders’ meeting so that the shareholders can take the most appropriate steps (which may include a capital increase, transforming the company’s legal status or winding it up). Under the emergency legislation, 2020 can be considered as a “grace year” for loss-making companies.

The foregoing is obviously only a brief overview of the situation and does not fully deal with all of the issues that companies are facing, often concurrently, or other sometimes complex management aspects requiring attention. This is a huge challenge for companies and their advisors.

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