Is there a threat of an “insolvency tsunami”?
Number of company bankruptcies increased significantly in 2023
December 4, 2023, 1:52 p.m
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From one crisis to the next: Many companies have been struggling for years because the recession is driving bankruptcies in Germany back to the level they were before the corona pandemic. Companies are therefore under constant strain – and experts expect the number of bankruptcies to continue to rise.
Weakened by the Corona years, high energy prices and increased interest rates, more and more companies in Germany are getting into difficulties. The credit agency Creditreform expects significantly more company bankruptcies this year and a further increase in 2024. “Do we now have to expect a wave of insolvencies or even an insolvency tsunami? We say very clearly: No, we don’t have to expect that,” said Creditreform managing director Bernd Bütow in Frankfurt.
“Overall, we assume that insolvencies will continue to increase next year, but not to a worrying level overall.” By the end of the current year, Creditreform estimates based on data up to and including November that 18,100 companies in this country will have gone to insolvency court, around a quarter (23.5 percent) more than a year earlier, when there were still 14,660.
With a view to 2024, the head of Creditreform economic research, Patrik-Ludwig Hantzsch, said: “Based on current knowledge, around 20,000 is quite realistic.” Hantzsch explained: “More and more companies are collapsing under the constant pressure of high energy prices and the change in interest rates.” An estimated 205,000 jobs have been threatened or lost due to company insolvencies this year. Last year there were 175,000 jobs.
The construction industry was particularly hard hit
Retail, real estate and construction are hit particularly hard. For large companies with over 250 employees, there was an increase of 50 percent compared to 2022. The most prominent example is the collapse of the Signa Holding of the Austrian real estate and retail investor René Benko, which owns numerous commercial properties in Germany as well as the Galeria Karstadt Kaufhof department store group. Other well-known companies also ran into turbulence in 2023, such as the fashion retailer Peek & Cloppenburg KG Düsseldorf (P&C), whose restructuring was completed in October, or the hypermarket chain Mein Real.
According to Creditreform, the insolvency application by Signa Real Estate Germany and Signa Holding shows how difficult the situation has become for project developers and property developers. The construction and real estate sector has had to deal with increased costs and higher interest rates since the start of the Ukraine war. With 81 bankruptcies per 10,000 companies, the construction industry currently has the highest insolvency rate in Germany.
Small companies in particular are running out of money
According to Creditreform figures, across all industries, more than 80 percent of the bankrupt companies are small companies with a maximum of ten employees. According to an analysis by the consulting firm Falkensteg, larger companies with annual sales of more than ten million euros are also giving up their business much more frequently than a year ago. In this category, the number of bankruptcies could rise from 190 in the first three quarters to 260 for the year as a whole, as Falkensteg estimates.
In the past seven years, there were only more cases in 2020 with 292 major bankruptcies. A kind of “corona boomerang” can be observed, said Hantzsch: business models that have been maintained thanks to state aid are now facing tough competition and delayed structural reforms are particularly burdensome in view of the new challenges. In order to avert a wave of bankruptcies as a result of the pandemic, the state temporarily made exceptions possible. In 2022, the number of insolvencies had already risen again for the first time since the economic crisis in 2009.
Normalization instead of a wave of bankruptcies
The current increase is above all a normalization of insolvency events after the expiry of state aid, said Christoph Niering, chairman of the professional association of insolvency administrators and trustees in Germany (VID): “An increase like we saw in the mid-noughties, with over 30,000 We will no longer see bankruptcies per year in the future.” The information service provider Crif takes a similar view and expects an increase of 22.8 percent to 17,900 company insolvencies this year.
Next year the number could climb to up to 20,000 cases. That would still be less than the average of almost 26,200 bankruptcies annually since 1999. The peak was in 2003 with 39,320 cases. According to Crif Germany managing director Frank Schlein, the majority of companies remain financially well positioned. However, the increasing number of major bankruptcies could lead to further bankruptcies. “In some cases, domino effects will ensure that insolvent companies drag other companies into insolvency with a time lag,” explained Schlein.
The robust situation on the labor market has so far prevented the number of consumer bankruptcies from increasing. Although the downward trend from the previous year did not continue, according to Creditreform, the number of consumer insolvencies will remain almost unchanged in the current year with an estimated 66,200 cases (2022: 65,930). However, the credit agency also expects rising numbers here due to the weak economic outlook, especially since the over-indebtedness situation of many people has deteriorated significantly.