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Business continuity in times of distress: debt restructuring agreements and compositions with creditors in Italy

Author

Listed:
  • Alessandro Danovi

    (University of Bergamo)

  • Iacopo Donati

    (University of Florence)

  • Ilaria Forestieri

    (University of Florence)

  • Tommaso Orlando

    (Bank of Italy)

  • Andrea Zorzi

    (University of Florence)

Abstract

The Italian insolvency framework makes several restructuring tools available to firms and their creditors, so that distress does not necessarily lead to liquidation. This paper analyses two such instruments: debt restructuring agreements (DRAs) and compositions with creditors (CCs), both commonly used to reorganize distressed firms and preserve their continuity. These procedures typically involve large firms, particularly in the case of DRAs where judicial control over negotiations is milder. Firms using DRAs are in less critical economic conditions when they file for restructuring, but they do so after longer periods of distress. Despite their declared aim, the effectiveness of these instruments in terms of business continuity is limited: many firms that use them end up exiting the market, in particular in DRAs. Firms that survive display only partial recovery, which is relatively more intense in CCs. However, the apparently superior performance of CCs is overshadowed by the long duration of restructuring, which may prevent us from observing definitive outcomes.

Suggested Citation

  • Alessandro Danovi & Iacopo Donati & Ilaria Forestieri & Tommaso Orlando & Andrea Zorzi, 2020. "Business continuity in times of distress: debt restructuring agreements and compositions with creditors in Italy," Questioni di Economia e Finanza (Occasional Papers) 574, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:opques:qef_574_20
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    insolvency; firm restructuring; business continuity;
    All these keywords.

    JEL classification:

    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • K29 - Law and Economics - - Regulation and Business Law - - - Other

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