The slower the courts are, the fewer companies file for bankruptcy

The slower the administration of justice, the more companies in crisis delay or avoid filing for bankruptcy. This phenomenon affects the Centre and South in particular. This is the picture painted by the report ‘Judicial efficiency and decisions to file for bankruptcy’, published by the Bank of Italia on 21 July 2026. According to the study’s data, moving from a court where the average duration of insolvency proceedings is 15 years to one where it is six years increases the likelihood that a company in difficulty will file for bankruptcy by approximately 8.7 percentage points.

Companies that are larger in size, more heavily indebted and more productive are more likely to take their case to court: if the cost of the proceedings is fixed, the benefits of coordinating a complex organisation are greater. Companies with a supervisory body or subject to external statutory audit, whose senior management may be held liable in the event of a failure to act promptly, are also more likely to enter insolvency proceedings. Conversely, when a company is family-controlled, it is less likely to initiate bankruptcy proceedings. Companies with a particularly concentrated bank debt are also less likely to resort to bankruptcy: as the number of creditors decreases, coordination problems are alleviated. The benefits arising from formal insolvency proceedings, relative to the costs, are thus diluted. Whilst the proportion of companies in financial difficulty is fairly consistent across the country, the percentage of firms – relative to the total number of those in difficulty – that resort to these procedures is substantially lower in Central and Southern Italy.

The second finding to emerge from the study is that the slower the court system, the longer companies wait before filing a petition. In districts where the administration of justice is swifter, the insolvency period for companies is reduced by 46.9 per cent. Taking an average of 24 months, this represents a difference of around 11 months between a court with an inefficiency rate in the 75th percentile and one in the 25th percentile. When companies expect the judicial process to be lengthy, the report argues, there is an incentive to delay. This is the principle of ‘gambling for resurrection’ (literally ‘betting on a resurrection’, ed.): losses in the event of an unfavourable outcome would be borne by creditors, whilst potential gains would accrue to shareholders.

The efficiency of the court, however, does not affect the type of proceeding chosen between judicial liquidation and a composition with creditors.

The study explains that these delays have tangible effects on the economic ecosystem, as they contribute to the continued existence of insolvent firms and ‘zombie firms’ – that is, companies whose operating margin has been lower than their financial expenses for three consecutive years. As a result, capital and labour are tied up in low-productivity activities for longer. Furthermore, delaying the initiation of proceedings means that companies end up before the court in a worse position and with less scope for effective restructuring.