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The wave of bankruptcies arrives in October, and these industries are the first to be affected
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Fewer corporate bankruptcies: calm before the storm?
The coronavirus has caused a severe recession. To save as many businesses as possible, the government has partially suspended the obligation to file for bankruptcy. But that also creates problems.
The analysis company Creditreform expects a sharp increase in the number of bad debts. In particular, a historical change reveals how dramatic the situation really is. Three industries would face particularly serious problems after the suspension of the bankruptcy petition.
reThe numbers seem paradoxical. In the midst of the crown crisis, which is a serious threat to the very existence of many companies, the number of insolvencies in Germany is decreasing. For months, bankruptcy figures have been significantly lower than the previous year: in April, for example, according to the Federal Statistical Office, there were 13.3 percent fewer corporate insolvencies, in May the least was almost ten percent, and in June the decline should be provisional estimates. according to almost 30 percent.
The background of this is the suspension of what is known as the obligation to declare bankruptcy. As is often the case, companies currently do not have to report to the court that they are over-indebted or insolvent, at least if the pandemic is the cause of the economic problems. The Federal Ministry of Justice (BMJ) wants to give air to those companies that have been in trouble for Corona and allow them to take advantage of state aid and promote restructuring efforts, as they say.
The corresponding law is limited until the end of September. At least still. Because the federal government now wants to extend the exceptional situation until December 31, the cabinet recently decided. However, with one crucial difference: the extension only applies to companies that are over-indebted due to the crown, but no longer for insolvent companies.
And that fundamentally changes the situation. Because according to the credit agency Creditreform, 90 percent of bankruptcy proceedings in this country are started due to insolvency.
By definition, a company is considered insolvent if it cannot settle more than ten percent of its owed liabilities within three weeks. Over-indebtedness, on the other hand, exists when debts are higher than assets and at the same time there is a negative ongoing business forecast.
Entertainment, travel agencies and the hotel industry are particularly at risk
Creditreform, therefore, anticipates a wave of bankruptcies starting in October. “The previous trend will be reversed in the fourth quarter. From then on, a significant increase in insolvency cases can be assumed ”, predicts CEO Volker Ulbricht, who sees small and medium-sized companies especially affected, and expressly considers this positive and even necessary evolution.
“Insolvencies have an important warning and signaling function in an economy”, explains the expert before the Düsseldorf Economic Journalistic Association (WPV).
However, this function is currently discontinued. This causes a great loss of confidence in economic life and in the end also destroys the profit base of other hitherto healthy companies that do business with these types of companies and then are not paid. After all, bad debts are one of the biggest reasons for financial problems that end up resulting in bankruptcy.
Creditreform believes that companies in the entertainment sector are seriously threatened, as well as travel agencies and the hotel industry. “In these three industries we see a significant deterioration in payment behavior,” explains Ulbricht. Payment terms would be exceeded outside of times of crisis. In these cases, however, development goes far beyond normal.
Take travel agencies, for example: at the beginning of March, the number of so-called days overdue for travel agencies was 15.5 on average; it is now 29.2 days. The development is also similar with entertainment companies, whereby Creditreform means, for example, companies from the fields of culture, sports and entertainment. For them, the days of delay increased from 15 to 28.8 in the period between the beginning of March and the end of August.
Finally, the credit agency reports a jump from 16.5 to 27.3 for the hotel industry. “That is blatant. There has never been such a change, ”reports Managing Director Ulbricht. At most, increases of one to two days are common.
“Negotiated across the board rather than selectively”
For the expert, the development points to massive liquidity problems. “Obviously, funds have to be managed carefully.” Especially since there is hardly any new money available. “At the beginning of the pandemic, banks were still generous in making loans. But that is changing more and more, ”says Ulbricht. Because in the institutes the fear of the delinquency of the loans increases. This could soon become a problem for the catering industry as well.
Because with an average of 20.54 days, this industry is also one of the branches of the industry with a significantly higher amount of arrears. In contrast, the situation in fixed retail is surprisingly stable. “There is no significant deterioration there.”
And in distance selling, that is, in e-commerce companies and mail order companies, payment behavior has even improved in recent months, from 9.4 days late in March to seven, as Creditreform reports.
But these are rare outliers. Ulbricht therefore predicts sharply rising bad debt figures. And then the crisis of the crown will also be perceived more strongly as an economic crisis by the population. And that raises the question of how to deal with the crisis. “The view is sharpening that we are paying an extremely high price for the kind of containment of the pandemic,” says the head of Creditreform.
However, Ulbricht does not want to reproach the politicians: “At first, little was known about the risks of the virus and therefore we acted in a generalized way rather than selectively.” In the future, however, the fight against the pandemic will have to be more focused. In retrospect, too much good has happened. And that will affect small businesses in particular in the coming months. “They’ll get all the soup out.”
