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New Auditor limits for smaller Corporation and Alert System

New Auditor limits  for smaller Corporation and Alert System

The recent enactment of the following law  :

DECRETO LEGISLATIVO 12 gennaio 2019, n. 14, Codice della crisi d’impresa e dell’insolvenza in attuazione della legge 19 ottobre 2017, n. 155. (19G00007)(G.U. n.38 del 14-2-2019 – Suppl. Ordinario n. 6)

brought a major reform  in the business crisis and insolvency act , where significant changes to the Civil Code have been made.

Among these changes, two are of particular interest:

A- New (lower) limits for the mandatory Auditor(s) appointment ( art. 2477 Civile Code)
B – A new Alert System to monitor and prevent corporate crisis ( art. 2086 Civil Code)

In a nutshell :
A – An Auditor must be appointed when – for two consecutive years – at least one of the following limit is exceeded:
1) total balance sheet assets: 2,000,000 euro;
2) revenues from sales and services: 2,000,000 euro;
3) employees employed on average during the year: 10 units.

Once fully operational, the Shareholder meeting that approves the financial statements where these limits are exceeded will proceed, within thirty days, to the appointment of the Auditor .
Companies have today 9 ( nine ) months after March 16th ( the “grace period” of 30 days after the new decree has been published ) to adapt the Articles of Incorporation ( if necessary  ) and appoint the Auditor .
B – The new art. 2086 c.c. that provides the imperative establishment of an Alert System , based on “ an organizational, administrative and accounting structure appropriate to the nature and size of the company, also in function of the timely detection of the crisis of the company and of the loss of business continuity, as well as to take action without delay for the adoption and implementation of one of the instruments envisaged by the order for overcoming the crisis and the recovery of business continuity “.

In order to comply with the dictates of the new art. 2086, business continuity will no longer be limited at verifying that the capital is not reduced below its Statutory legal limit  but, and above all, to the evaluation of future strategic choices that will be implemented by the company. Major changes in the reporting system will thus be required.

The law also provides the establishment of a new public entity called OCRI (Business Crisis Composition Organism) set up by the Chamber of Commerce , that will receive alert reports from Companies ( namely by its Directors and Internal Auditors) and by its qualified creditors ( Tax Offices and INPS ).
Fully operational, the entire alert system will come into force on 14/08/2020 (18 months from publication in the Official Journal of Legislative Decree 14/2019) with the actual establishment of the OCRI and with the determination of the quantitative indices of detection of the crisis to be determined by the CNDCEC (National Council of Certified Public Accountants and Accounting Experts) and approved by the MISE.
To conclude :
The lower limits that trigger the appointment of the Auditors ( A) and the new Company duties connected to the Alert System (B) are obviously connected, being the first one a way to strengthen the objective of the second, spreading responsibilities and duties on a wider number of subjects.
This article wants to be a “heads up “ , and on both issues we’d be happy to offer our support if you decide so. Auditor positions can be provided by our Offices, and we’d like to encourage the establishment of management control processes, aimed at complying with the new local regulations, once they’re in effect.
Being the rules the result of an EU legislation , for International companies  a joint reporting process might be ( or will be ) probably in place  ; if such is the case, local efforts this side of the border  will aim to verify , monitor , implement such system with local requirements and share its periodic results in a formal reporting .

Please contact us for any further info you might need.

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