Negotiated Crisis Settlement: what it is, when it makes sense and how it differs from bankruptcy

Negotiated crisis settlement is one of the most important tools in the Italian Business Crisis and Insolvency Code (Legislative Decree 14/2019): introduced by Decree-Law 118/2021, it became part of the Code in 2022 (Articles 12–25-undecies). Yet, in practice, many business owners only find out about it when it is already too late.

In this article I explain what it is, when it makes sense to use it and, above all, what changes compared with judicial liquidation (formerly bankruptcy) or a court-supervised arrangement with creditors (concordato preventivo).

What negotiated settlement is

Negotiated settlement is an out-of-court procedure that allows a business in difficulty to negotiate with its creditors with the help of an independent expert appointed by the Chamber of Commerce.

It is not bankruptcy. It is not a court arrangement. It is an assisted negotiation aimed at finding an agreed solution before the situation becomes irreversible.

The owner keeps control of the business throughout the process. They can continue to trade, pay strategic suppliers and meet payroll. This is a substantial difference from traditional insolvency procedures.

When it makes sense to use it

Negotiated settlement is appropriate when the business is still able to generate operating cash but is in a situation of financial or balance sheet imbalance that, without intervention, leads to insolvency.

In practical terms: if the business is viable but carries too much debt, has an unsustainable financial structure, or faces creditors pushing for drastic solutions, negotiated settlement can provide the time and space to restructure.

The signs that should prompt a business owner to act are:

• Persistent cash strain over the last 12 months
• Accumulating tax or social security debts
• Credit lines at their limit or withdrawn
• Repeated losses eroding equity
• Difficulty meeting payments to key suppliers

The critical point is this: the procedure works when it is started in time. The most common mistake is to wait.

How it differs from a court-supervised arrangement (concordato preventivo)

The concordato preventivo is a court procedure. It requires the involvement of the court, long timescales, high costs and — above all — a loss of control over the business that many owners underestimate.

Negotiated settlement is faster, more discreet and less expensive. As a rule it remains confidential: it is not published in the companies register unless the owner applies for protective measures. Suppliers and customers do not receive automatic notifications. The owner can negotiate confidentially with the banks, the tax authorities and the main creditors.

Another element that is often overlooked: in negotiated settlement the owner can apply for protective measures, which temporarily prevent creditors from starting or continuing enforcement and precautionary actions; they must then be confirmed by the court. This gives breathing space to negotiate without the pressure of seizures.

The role of the expert and the adviser

The expert appointed by the Chamber of Commerce facilitates the negotiation but does not decide. They have no coercive powers. Their role is to help the parties find a point of balance.

Alongside the expert, the owner needs an independent financial adviser who:

• Builds the turnaround plan with credible numbers
• Analyses debt sustainability under different scenarios
• Supports negotiations with the banks and main creditors
• Assesses whether alternative solutions exist (partial sale, entry of a new shareholder, spin-off of business units)

The quality of the financial plan is often the decisive factor in the success of the procedure. A badly built plan — with unrealistic projections or without a clear analysis of the debt structure — convinces no creditor.

How long it lasts and what it costs

The procedure has an initial duration of 180 days, which can be extended by a further 180 days at most. In practice, the most complex negotiations last 9–12 months.

Costs depend on the complexity of the business. In addition to the expert’s fee (which is regulated), there are the costs of the financial adviser and, where needed, a specialist lawyer. In any case, costs are significantly lower than those of a concordato preventivo or a liquidation.

A final consideration

Negotiated settlement is not a magic solution. It does not save businesses that lack a sustainable model. But for those with a working model weighed down by a difficult financial past, it can make the difference between carrying on and closing down.

The mistake I see most often is waiting. People wait for the situation to resolve itself, put off the difficult conversation with the banks, hope the market will improve. Meanwhile, the room for manoeuvre shrinks.

If you are considering this route, the first thing to do is an honest financial analysis of the current situation and the real prospects. Only by starting from clear numbers can a credible path be built.