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The year Corona 2020 brought a sharp drop in bad debts compared to 2019. The outlook is misleading due to government subsidies and the suspension of parts of bankruptcy law. A wave of insolvencies threatens in the second quarter of 2021.
Vienna
The year Corona 2020 plunged the national economy into the greatest economic crisis after World War II. And yet, according to creditor protection association KSV1870, with around 3,000 companies failing, the number of business insolvencies is paradoxically lower than it has been in 30 years. But only thanks to the help of the crown. By 2021, the KSV expects a sharp increase again. In the middle of the year, a wave of insolvencies could arrive. “The current bankruptcy figures do not reflect the economic reality,” says KSV chief Ricardo-José Vybiral. Because it doesn’t look so good.
The number of company bankruptcies has dropped by around 40 percent to 3,017 insolvent companies. The resulting debts increased by 75.3 percent to a total of 2,974 million euros. The number of affected employees, 16,300, is also 5.2 percent lower than the previous year.
The bankruptcy of the Burgenland Commerzialbank (Cb), the third largest bankruptcy of the Second Republic, brought in a larger share of around 800 million euros. If Cb’s insolvency is subtracted, the bottom line remains a 25 percent increase in debt to € 2.2 billion, despite a massive decline in the number of bankruptcies.
According to KSV1870, there can be no doubt that everything is clear for bankruptcies. Corona’s help has helped companies that have gotten into trouble. But even companies that weren’t just at risk as a result of the corona pandemic could have avoided the bankruptcy of state aid. KSV’s creditor protectors expect a wave of insolvencies to begin in the second quarter of 2021.
© KSV1870
There is also a decrease in personal bankruptcies: in 2020, 7144 people had to file for personal bankruptcy, 23 percent less than in 2019. With 1,138 million euros, debtors had written off 18.7 percent less than the year previous Private debtor of the previous year.
The paradox
Despite huge losses in sales in many industries, for example in tourism, hospitality and catering or the events sector, fewer companies than in normal years have gotten into trouble, says Karl-Heinz Götze, an expert on KSV insolvency. However, this is mainly due to state aid in the form of a crown. Götze emphasizes that the crown’s help was “correct and necessary.”
KSV insolvency expert Götze calls for the aid to be reduced or even suspended in the next year according to the “sprinkler principle”. “We saw that before the Corona crisis, companies were in trouble that were actually no longer viable,” Götze said. Due to the corona pandemic, the tax office and health insurance company were urged not to file for bankruptcy during the year. Otherwise, these account for about 50 percent of all corporate insolvencies. And as a result, bankruptcies have also dragged on. However, this is all the more dangerous for competition because companies that have been artificially kept alive are now trying to succeed with dumped prices.
“Funding based on the sprinkler principle is dangerous for the economy in the long run because healthy companies are dragged into a downward spiral,” says insolvency expert KSV Götze. This means that healthy companies would also be dragged into dumping competition and dragged into the abyss.
The great wave of bankruptcies
The KSV1870 expects a sharp increase in bad debts of about 20 to 25 percent compared to 2019 starting in the second quarter of 2021. However, the federal government is not supposed to provide further relief measures.
Therefore, the KSV1870 will not tire of recommending to companies in financial difficulties that they initiate the restructuring themselves on time, even before going to the bankruptcy judge that the law requires and, if necessary, filing for bankruptcy. “The bankruptcy law allows for a restructuring that also implies a new beginning,” Götze said. About 30 per cent of companies that have filed for bankruptcy are able to start over, compared with just eight per cent of bankrupt companies in Germany that restart after an orderly debt reduction.
The industry radar: good mood
The mood in the national economy has improved despite the corona pandemic. According to the KSV industry radar, companies have accepted the difficult situation. The uncertainties of the corona pandemic – “when the crisis will end” – are the biggest concern for about 52 percent of companies. The risk of employees becoming infected is the top concern for 40 percent. More than half of the companies surveyed with the KSV Industry Radar expect an economic recovery to take place in the next year, but 27 percent of those surveyed do not expect a recovery until the third quarter of 2021. Another 27 percent he believes that only the year 2022 will ease. The greatest poison for economic development is constant uncertainty, because it slows down investment.
Companies are making progress on the issue of digitization. “Companies have learned to deal with the blockade,” says KSV boss José-Ricardo Vybiral. “We know that 70 percent of companies did not have a digital agenda before the corona pandemic, then they quickly adapted to the new situation and are now also dependent on digitization.”
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