Creditreform: Germany is threatened with many bankruptcies in the spring

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There is no lack of warnings.

For several weeks, with reference to the Corona crisis, a bad wave of bankruptcies has been predicted for companies in Germany from several directions: by economists, for example, by insolvency administrators, but also by insurers and not least from the economy itself.

There is, for example, the German Retail Association (HDE), which sees tens of thousands of brick-and-mortar retailers at risk in view of falling frequencies in city centers and the order boom on the Internet.

Or the German Hotel and Restaurant Association Dehoga, which sees a collapse in the hospitality industry if the current lockdown lasts even longer.

And the event industry is also reaching its limits, according to the “Red Alert” alliance, as there have not been any festivals, concerts, trade fairs or congresses for months.

Corporate insolvencies decrease by 13.4 percent

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So far, however, only a few companies have exceeded these limits.

This is shown by current Creditreform figures.

According to the credit agency, there are only 16,300 corporate insolvencies in Germany this year.

Despite the massive economic downturn, this is not only 13.4 percent less than in the previous year, it is also the lowest level since the introduction of the insolvency law in 1999.

The number fell in all main economic sectors, but most clearly in the construction industry, followed by trade and the services segment.

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However, this figure does not reflect the actual state of the domestic economy.

“In the current year, the bankruptcy process has decoupled itself from the real state of German companies as a seismograph for overall economic development,” says Patrik-Ludwig Hantzsch, Head of Economic Research at Creditreform.

The expert cites the federal government's numerous aid packages as the reason, starting with short-time work benefits and direct financial injections to the temporary suspension of the obligation to file for insolvency.

This lifting of the reporting requirement actually only applied to pandemic-damaged companies with a prospect of restructuring.

The figures show, however, that the opportunity was also used by many other board members and managing directors, Creditreform writes in its annual analysis of “great deadweight effects”.

From spring onwards, there could be a “rude awakening” for many bosses, as the insolvency administrators say.

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Hanztsch also sees this for the economy as a whole.

"Thanks to the state aid, a large number of companies remain in the market that were actually no longer viable regardless of the Corona crisis."

The word “zombie company” has therefore been around for a long time.

This refers to companies that should have been bankrupt long ago, but which are artificially kept alive through aid money or cheap loans.

"Bankruptcies are an important mechanism for protecting the economy," explains Hantzsch.

"Companies without a viable business model have to be taken off the market or completely restructured so that the German economy as a whole remains competitive even after Corona." Sectors such as the auto industry, aviation and retail are facing drastic upheavals anyway.

"The structural change is being delayed by these measures."

Especially in the case of small businesses, there were noticeably fewer insolvency reports due to the suspension, according to Creditreform.

Nevertheless, this group remains dominant in the insolvency scene in Germany.

In eight out of ten cases, companies with a maximum of five employees were involved.

Nevertheless, the amount of damage and the number of job losses have increased significantly.

Because there were far more bankruptcies of large companies.

For the turnover class of 25 to 50 million euros, for example, Creditreform reports an increase of a good 36 percent to 150 cases, for companies with annual revenues of over 50 million euros there was even a doubling to 180.

The bottom line is that this has resulted in a loss of around 34 billion euros for the creditors, almost a third more than in the previous year.

The loss volume was last similarly high in 2012 at 38.5 billion euros, at the time, however, with a significantly higher number of almost 29,000 corporate insolvencies.

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In 2020, the receivables threatened by default added up to an average of a good two million euros per case - that is a new high.

At the same time, the number of jobs lost rose from 218,000 last year to 332,000 this year.

Experts are not surprised that more large companies have taken to the bankruptcy court.

“They are often better advised,” says the renovation guild.

Well-known big failures were the department store chain Galeria Karstadt Kaufhof, the fashion retailers Esprit, Tom Tailor and Bonita, but also the restaurant chain Vapiano, the car supplier Veritas and the payment service provider Wirecard after a balance sheet scandal.

Large companies in particular use insolvency law with options such as protective shield proceedings and self-administration, in which the current management remains on board but is supervised by an insolvency administrator.

According to statistics, these restructuring instruments are used in more than half of all cases in this size segment.

It is noticeable, however, that the major bankruptcies were mainly concentrated in the summer.

"If you look at the number of jobs affected by insolvency since the beginning of the crisis, the insolvency events were the quietest in October and November," says Steffen Müller, head of the structural change and productivity department at the Leibniz Institute for Economic Research (IWH ) from Halle.

Increasing bankruptcy seems to be the consensus in the industry

According to the current insolvency trend of the IWH, the ten percent of the largest companies whose bankruptcy was reported in November only employ 5500 people.

So few employees were affected in any other month of 2020.

However, it is clear that even a few very large bankruptcies can quickly change this picture.

And there seems to be unanimous opinion in the industry that the number of bankruptcies will soon rise.

The warnings from HDE, Dehoga and Co. have a serious background, even if it looks different so far.

In retail, for example, the number of bankruptcies is an estimated 3300, over 16 percent below the previous year, as the data from Creditreform show.

The renovators are therefore preparing.

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"We expect a significant increase in the number of insolvencies in the coming year," says Christoph Niering, chairman of the German Association of Insolvency Administrators (VID).

However, he does not yet want to speak of a “wave of bankruptcies”.

Especially since some of the state aid will be retained, including short-time work benefits.

Creditreform also expects a trend reversal.

According to earlier statements, the credit agency predicts around 24,000 bankruptcies for the coming year - a number that is also in line with the Bundesbank's forecast.

"The recession has massive effects on the liquidity and financial situation, especially for the catering trade, retail trade or the trade fair, travel and event industries," says the Creditreform annual report.

"That will be reflected in the insolvency figures from next year."

Instead of having fun in the huts, many ski resorts fear mass bankruptcies

Skiing vacation will fall through the water for most this year.

This is not only due to the warm weather, but also to the corona pandemic.

This hits lift operators, hut keepers and ski rentals hard.

Source: WELT / Vitkoria Schulte