On August 25, 2021, Law decree 118/2021 came into force, introducing a new proceeding in the Italian legal system, the “Negotiated settlement for the solution of business crisis”, concerning the prevention/management of business crisis. Many analyses have already been carried out. A crucial aspect has been neglected, the training in negotiation and mediation techniques. How should the training be set up? How to negotiate/mediate the relationship between creditors and debtors, especially banks?
On August 25, 2021 Law Decree 118/2021 came into force, which, in Article 2, introduces a new institute:
“Negotiated settlement for the solution of business crisis”.
Mediation, therefore, entered into the rules of business crisis management in Italy. More precisely, in contemporary Italy, because it was already part of the jus mercatorum and, above all, of the legislation of the Serenissima Republic of Venice.
Obligations towards the European Union acquired, including the shortening of the length of civil proceedings and insolvency procedures, the Italian government appointed a study commission (Pagni Commission). The final draft, entitled became Law Decree 118/2021, along with a comprehensive explanatory report.
The most interesting novelty is the introduction of a new proceeding, the ”Negotiated settlement for the solution of business crisis”, which is voluntary and can be activated only upon request of the debtor in economic and financial imbalance. The debtor, while retaining the availability and management of the business, may request the involvement of an expert, who will manage the negotiations between him and the creditors, to find a solution to the crisis. The proceeding lasts 180 days, unless all parties request its extension.
Analyses on several aspects of the decree-law were immediately several. An issue, according to me essential, was neglected: training in facilitation and mediation techniques.
“Art. 2 – Negotiated settlement of the resolution of business crisis.
1-.The commercial and agricultural entrepreneur, in a state of financial or economic imbalance that make it likely the crisis or insolvency, may request – to the Chamber of Commerce – the appointment of an independent expert when the recovery of the company seems reasonably achievable …. .
2-. The expert shall facilitate negotiations among the entrepreneur, creditors and any other interested party, in order to find a solution to overcome the conditions referred to in paragraph 1, also through the transfer of the company, or branches, thereof.
“ Art. 3 – …. – 3- A list of experts shall be drawn up – at the Chamber of Commerce –, into which the following can be entered: people, who have been enrolled for at least five years in the professional register of chartered accountants and accounting experts; … lawyers, who can prove previous experience in the field of corporate restructuring and business crisis; … labour consultants, who can prove that they have participated, at least in three cases, in the achievement of debt restructuring agreements … . … those who have carried out administrative, management and control activities in companies involved in restructuring operations, ended with a certified restructuring plane … .
4.- Registration on the list referred to in paragraph 3 is also subject to compliance with the specific training provided for by decree …. of the Ministry of Justice … ,
5- The application for enrolment in the list … shall be supported by the documents proving the possession of the necessary requirements, by the certification attesting the fulfilment of the training obligations referred to in paragraph 4, and by a curriculum vitae … showing any other training experience in the field, including facilitation and mediation techniques ….”.
The vast majority of professionals, who managed insolvency proceedings in Italy to date, have generally done so using adversarial techniques, which are in fact underlying the legislation in force. Negotiation and mediation techniques, on the other hand, are not particularly known or appreciated.
Training is the basic problem, in relation to the duration (only 50 hours, as in many other countries) and to the contents: the vast majority of mediators are lawyers, usually trained and keen in legal and procedural issues. However, since mediation is a fusion of different knowledge and techniques, training is needed not only on legal issues, but also on communication methods, on principles of psychology and sociology, on how to handle ‘difficult’ subjects, on the consequences of cultural differences in relations among individuals and on timing in mediation management. Moreover, in this negotiated settlement of business crises, mediation will be multi-part and multi-level; managing it as a traditional composition with creditors could reserve unpleasant surprises.
The 2021 year seems to be in Italy, at least at the institutional level, the year of ADRs discovery. Among the commitments made by the government to the European Union, there is the reduction of civil justice length. A specific study commission has been set up, chaired by Prof. Luiso, which has recommended widening the range of subjects covered by compulsory mediation and making the long-standing tax benefits effective, as well as revising the training criteria. There would be the opportunity to introduce the topic of insolvency management – or, better still, prevention – into university and mediator courses. As long as we are aware that, in a situation of financial crisis, there are two elements whose lack is most severe: money and the time to look for it. And time will be a crucial variable in the negotiated settlement of a financial crisis.
In most cases tax authorities / social security institutions and banks are the key creditors. The former have their own regulatory constraints. The latter are in a foggy environment: credit companies have now become commercial networks with very few specialists in dealing with critical issues, many kilometers far away (and sometimes unknown by the commercial staff); commercial operators generally have no experience in debt collection and, when the risk position is almost gone, they reclassify it as Unlikely-To-Pay or Non-Performing-Loans, after than it is almost immediately securitized. Until 20 years ago, at least in Italy, the main job of banks was to lend money and, if they were able to do so, to get it back; today, however, they sell products that have little to do with lending.
How quickly will banks answer to the solicitation by the negotiation expert? Will they share the proceeding represented by a lawyer or by a lawyer along with a commercial manager? The first solution would most likely reach unrewarding results, the second would allow the evaluation of alternative commercial opportunities, supported by the fact that many and different products are available by banks, which could satisfy the needs of the debtor client (and save the relationship) in different ways, even strongly differentiated.
Compared to credit institutions, will servicers, assignee of UTPs and NPLs, be more willing to negotiate, in which way and timing?
Negotiation training, which also takes these aspects into account, will be necessary.
But the first people, to negotiate with, and perhaps the most difficult to get in tune with, is debtor, who often lives in a psychological situation detached from reality, focused on a few problems to be managed or single goals to be achieved, seldom with a perception of the overall situation. And “taking a picture” of the latter often wastes precious time. Specific training will be particularly useful.
Summing up. The “negotiated settlement for resolving business crisis” is an interesting novelty. Its proper use will require a significant cultural change, which will take time, and adequate training in negotiation / facilitation / mediation techniques, which can be achieved in the short term.
Will this training be provided?
The full article and notes are here: link