In a corporate crisis, timing can make the difference between saving a business and losing its value.
Drawing on data from the Bank of Italy and a comparison between Italy and the United States, we explore why time is one of the most critical factors in managing a corporate crisis.
“What is the biggest mistake people make in a crisis?”
“Not knowing they’re in a crisis.”
These lines, although taken from a fictional context such as the TV series Scandal, perfectly sum up one of the main problems in managing corporate crises: the failure to recognize a state of financial distress and the delayed use of the tools provided for under the Italian Corporate Crisis and Insolvency Law.
According to a study published by the Bank of Italy in December 2025, between 2002 and 2023, 34.8% of companies that subsequently entered bankruptcy proceedings had already been classified as being in severe financial distress in the two years preceding the opening of the proceedings, while 12% had been in that position in the past five years.
This does not necessarily mean that management was unaware of the difficulties: some may have underestimated their severity, while others may have hoped for a recovery. Nevertheless, the data show how deterioration in a company’s financial position can precede the use of formal insolvency procedures by several years.
One of the main challenges in managing financial distress is understanding when ordinary business difficulties have developed into something more serious. A temporary shortage of liquidity or a period of weaker performance does not necessarily signal a crisis. The challenge for management is recognizing when these problems point to a deeper financial imbalance, especially since a company’s financial indicators may not always tell the same story.
The problem is not simply having access to the figures but knowing how to interpret them. Growing revenue can also conceal increasingly narrow margins, just as positive EBITDA does not guarantee that a company is financially healthy. Payments from customers may be collected too slowly; inventory may absorb liquidity, or financial obligations may exceed available resources. Alongside profitability, it is essential to examine cash flows, distinguishing the cash generated by operating activities from that absorbed by investments. Tools such as the cash flow statement and the Debt Service Coverage Ratio (DSCR), which measures a company’s ability to meet its debt service obligations, help assess whether it can fulfil its financial commitments.
In this context, financial planning becomes particularly important. In a publication from May 2026, Italy’s National Council of Chartered Accountants and the National Research Foundation of Chartered Accountants emphasized the need to supplement accounting results with reliable forecasts of cash inflows and outflows. A regularly updated cash budget allows to identify potential liquidity pressures in advance and distinguish temporary difficulties from persistent imbalances. Forecasts can cover a twelve-month period and, particularly in more delicate situations, be accompanied by weekly analyses. Constantly comparing actual results with forecasts also makes it possible to revise assumptions that prove overly optimistic.
This focus on prevention is also reflected in Italian legislation. Article 3 of the Italian Corporate Crisis and Insolvency Law requires individual entrepreneurs to adopt appropriate measures to identify a state of crisis promptly, while corporate businesses must establish adequate organizational, administrative and accounting arrangements, as also provided for under Article 2086 of the Italian Civil Code. The aim is not simply to prepare documents or review financial results at the end of the year, but to have the tools capable to identify potential balance-sheet imbalances, assess debt sustainability and evaluate the company’s prospects for continued operations over at least the following twelve months.
Paragraph 4 of the same article identifies certain warning signs that may precede the emergence of a crisis: delays in paying employees, overdue debts to suppliers, bank exposures that are overdue or exceed the credit facilities granted, and certain outstanding debts to public authorities. The provision establishes specific thresholds and conditions for each of these indicators. In the case of suppliers, for example, it considers debts that have been overdue for at least ninety days when their total amount exceeds that of debts not yet due. These are not conditions that automatically establish a state of crisis or insolvency, but warning signs that must be assessed as part of a broader monitoring system.
Recognizing financial imbalances promptly does not, of course, guarantee successful restructuring. However, it allows companies to evaluate their options before the situation deteriorates further. A business that is still able to sustain its operations and maintain regular relationships with creditors may have greater room to renegotiate its debt, review investments, seek new financing or adjust its business model. Where the relevant conditions are met, tools such as the negotiated crisis settlement procedure can also provide a structured framework for assessing restructuring prospects and beginning negotiations with creditors.
The importance of timely intervention is also supported by the Bank of Italy’s December 2025 study. Analyzing companies that entered going-concern composition proceedings between 2010 and 2015, the researchers examined the relationship between the persistence of previous financial difficulties and business survival over the following five years. Controlling for the other characteristics considered, companies that had been economically vulnerable throughout the five years preceding the proceedings had a probability of remaining in the market of approximately 12 percentage points lower than the overall average of 28%. Vulnerability was identified by measuring gross operating profit against financial expenses. Although the results do not demonstrate a causal relationship, they highlight how prolonged financial difficulties are associated with lower chances of a successful restructuring.
The timing of a restructuring depends on two distinct factors: how early a company recognizes the need to act and how long the restructuring process itself takes. The time required for restructuring procedures to reach a solution also matters. In the United States, according to Department of Justice data relating to proceedings initiated between 2020 and 2023, the median time required for plan confirmation is 6.6 months for small businesses using Subchapter V of Chapter 11, the US bankruptcy procedure that allows distressed companies to reorganize their debts and operations under court supervision, typically while continuing to operate, compared to 10.4 months under ordinary Chapter 11 proceedings for small businesses. In Italy, a Bank of Italy study published in 2023 instead reports a median duration of 469 days, approximately 15 and ½ months, between the filing of an application for a composition with creditors and court approval, considering proceedings approved in 2019.
The Italian framework has, however, changed with the introduction of the negotiated crisis settlement procedure. According to Unioncamere’s November 2025 Observatory report, the process takes an average of 228 days to conclude, rising to 320 days in cases with a favorable outcome and falling to 207 days in those with an unfavorable outcome.
The international comparison must nevertheless be interpreted with caution: the data refers to different periods and to procedures that differ in nature and purpose. A faster procedure does not necessarily guarantee a better restructuring outcome, just as a longer duration is not a sign of greater rigor. In a country such as Italy, often associated with complex bureaucracy and lengthy proceedings, it is particularly important to distinguish the time needed to assess restructuring plans and protect creditors from that absorbed by potential procedural inefficiencies. For a company in financial distress, unjustified delays can result in further liquidity consumption and loss of value. The efficiency of a system should therefore be assessed not only by the speed of its procedures, but also by its ability to achieve sustainable solutions while preserving, as far as possible, the value of the business.
In conclusion, the data show how decisive time is in managing a corporate crisis. But to act in time, a company must first recognize the difficulties it faces, because the greatest risk is precisely that of “not knowing you’re in a crisis.”
