The Effects of Extraordinary Loans on Competition and Bankruptcies

Many of the emergency measures implemented during the acute phase of the pandemic will show their (positive or negative) effects in the long term. The choice of postponing the coming into force of the Codice della Crisi di impresa e di insolvenza (Code of Business Crisis and Insolvency), which radically modifies the structure of the bankruptcy law, is also linked to the situation deriving from the pandemic but allows for inevitable repercussions on the legal discipline of bankruptcy proceedings, also in relation to Decree 118/2021 which applies to the matter as well. The topic is at the center of the most recent legal scholarship of Francesco Mucciarelli, Professor of Criminal Law, and continues in the wake of the articles already devoted to examining Italian government decrees issued in 2020 to regulate loan grants to and tackle crisis in firms.

"These measures had to strike a balance between two needs: to intervene quickly to inject liquidity into the business system and at the same time prevent companies from accessing these government subsidies in a fraudulent way," summarizes Mucciarelli. Finding the right balance is very important: the absence of efficient control mechanisms can have distorting effects on the lending market and competition, allowing entrepreneurs with less scruples to acquire illegal positions of competitive advantage, damaging the entire economic system.

"Ensuring fair competition is a fundamental principle in any market system", explains the professor. "All the more so in an emergency context in which, faced with the paralysis of production and markets, a Keynesian-style solution was adopted, in this case in the form of injecting liquidity into businesses through forms of public guarantee on bank loans. In a nutshell, the solution adopted in many of these measures consisted in setting the parameters of access to government subsidies, entrusting control to a later stage of the process." It will soon be a question of verifying the outcome of these checks and whether there were effects on fraudulent behavior that may hide corporate crime.

"By analyzing the data, for example, we will be able to know how many companies could really ensure business continuity, as required by the decree setting requirements to access financing. In view of the crisis, the legislator in fact allowed entrepreneurs to declare they were a viable business not based on 2020 financial statements but on accounts for fiscal year closing on 31.12. 2019. If, in a few years, should any of these companies go bankrupt, that will be decisive in evaluating the correctness of their statements to obtain credit reprieve."