One of the requirements for bankruptcy is the existence of a state of insolvency on the part of the entrepreneur. But what is the state of insolvency ? Which are the useful terms to be able to connote correctly?


The concept of insolvency


The state of insolvency , as indicated by the art. 5 of the Bankruptcy Law, is represented by the financial situation of the debtor who is no longer able to meet his obligations regularly .

In this brief notional definition, there are several aspects that would merit a concrete deepening aimed at making concrete clarity. And, among the different elements of potential focus, one of the most important is certainly marked by the specification of the adverb ” regularly “.

Notwithstanding that we cannot speak of insolvency if the entrepreneur has a momentary difficulty in satisfying a single obligation , or a few obligations concretized temporally, it follows that the adverb indicates not only the inability of the debtor to meet the debts in due deadlines, but also to its inability to meet obligations by normal means , in relation to the ordinary exercise of business.

From the point of view of the timeliness of the fulfillment it is usually instead distinguished between temporary difficulty and temporary difficulty . The difficulty is temporary if the entrepreneur is in any case able to find within a reasonable period of time those normal means of payment that are suitable to extinguish the liabilities that can no longer be delayed. In this case, a state of insolvency can hardly be traced.

Not only. The debtor is also insolvent if he is no longer able to satisfy his creditors by normal means . Therefore, the debtor who returns to the supplier the goods that he is not able to pay, or that does not have liquid means and therefore extinguishes the pecuniary debts by assigning credits is insolvent. In this case the debtor will not default, but will still be insolvent.

The same can be said, however, with regard to the extinction of one’s pecuniary debts in money which, however, procures itself not in relation to the ordinary exercise of the company, but – perhaps – by resorting to usurable loans or when it has obtained anomalous bank credit (for example, by having the same bill advanced by several credit institutions).


How insolvency is manifested

How insolvency is manifested

In view of the above, it becomes very important to try to understand how insolvency can be manifested.

In this context, the typical manifestation of insolvency is certainly defaults , which may result from protests of securities that incorporate an obligation (such as bank checks), from the pending enforcement proceedings, from the registration of judicial mortgages or from seizures of a conservative nature.

If what we have previously stated it is clear, it should also be the fact that infringements are not always of insolvency events. The debtor may indeed be in default because he believes that certain credit claims are groundless, thereby refusing to pay a debt. Identically, it is possible that the debtor is insolvent, but without defaulting.

It is therefore of interest to understand that the insolvency can manifest itself not only with the non-fulfillment (which occurs in most cases) but also with other external facts , and also with facts that are compatible with the termination of the expired obligations. Think of liquidation sales, the sale of capital goods, sales of non-strategic assets but at a lower price than the right one, which can make it possible to meet receivables due, but still constitute manifestations of a state of insolvency. It is, moreover, an educational case, given that all these external events (including the closure of the premises) are possible manifestations of the state of insolvency even in the absence of defaults, but it is in any case essentially inevitable (or almost) that there are also defaults.

It is important to take into account that defaults and other external facts do not always represent unequivocal symptoms of insolvency.

We have already observed that defaults do not necessarily mean the inability to perform . Liquidation sales may in fact be conditions depending on the need to be able to dispose of items out of fashion. The closing sale of capital goods can be justified by the need to replace them with others. The closure of the premises or the irresponsibility of the entrepreneur could also be linked to other factors that are certainly not necessarily traceable in such a univocal and stressful way to the insolvency of the debtor.

Therefore, the advice we can share with all of you is the need to carry out a case-by-case assessment of all the elements , bringing them to the light of the circumstances of the specific case, in order to establish whether the clues are serious, precise and consistent, and constitute a proof pursuant to art. 2729 of the Italian Civil Code, obviously since when the symptoms are more numerous, and in particular the more numerous and generalized the insolvencies are, the more stringent is also the picture of “clues” that can lead to the classification of insolvency.

In conclusion of this brief in-depth analysis we can only make a brief mention of what appears to be one of the most important instruments for verifying the state of insolvency, which are the budgets . In fact, since the state of insolvency is compatible with the existence of a net equity (that is, assets greater than the liabilities), in order to establish whether or not there is insolvency it is useful to compare the asset items consisting of liquidity or assets and easy realization, with the liabilities items that are constituted by debts due in the short term. We can therefore help with the indices determined by the balance sheet analysis to be able to understand whether there is a risk of tangible insolvency or not.


The extent of defaults


We come to the end of this in-depth analysis with a brief reference to defaults, which as we have seen are the determining factor in the most common and recurrent insolvency, although it is certainly not the only and necessary.

Well, with the reform of the Bankruptcy Law it has been established that there is no place for the declaration of bankruptcy if the amount of the overdue and unpaid debts resulting from the deeds of the pre-bankruptcy preliminary investigation is overall less than 30 thousand euro .

Now, it is good to remember that the reference not to the overall debt exposure, but to the overdue debts, can be justified by not being able to take into account the medium / long-term debt exposures. However, if in the presence of debts due to expire, the insolvent debtor is able to contain the defaults below the established threshold, the foreclosure of the bankruptcy risks legitimizing the aggravation of the collapse. On the other hand, an extensive interpretation of the rule, which allows for the impending expiration to be encompassed between past due and unpaid debts, of which payment is almost certain, is not really possible.

Exceeding the threshold of 30 thousand euros, which is not very high, should frequently result from the pre-bankruptcy investigation. If it does not appear, however, not being expressly foreseen, unlike what was established for the size limits of the company, a burden of proof on the debtor, it will be necessary to ask whether it is an autonomous assumption of bankruptcy, or of an impediment .

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