In the years before the pandemic, business bankruptcies remained
Relatively stable: Between 2015 and 2019, around 16,500 companies declared bankruptcy each year. The bankruptcy rate also fell (from 47 to 42 per 10,000 active companies). This highlights that bankruptcies were relatively low in 2019, falling from 250 per 10,000 active companies in 1992-93 to around 40.
This decline was largely due to the decline in interest rates over the past thirty years, but also due to stronger fundamentals as well as more favorable macroeconomic conditions as compared to 1992-93. The net margin of listed companies had increased from 4.3% in 1992-93 to 7.6% in 2017-19.
2020 was an extraordinary year, as many measures were taken
Public authorities completely changed the normal dynamics of bankruptcy to support companies during the lockdown period. These measures, such as ERTE, the suspension of certain commercial legal rules on guaranteed loans, delays and moratoriums on insolvency proceedings, caused the number of bankruptcies to drop dramatically in 2020 (-28%) and remain at historically low levels. First half of 2021.
Guaranteed loans crunch as these measures are phased out
to be returned and the moratorium period has expired, leading to the normalization of corporate bankruptcy. The number of voluntary liquidations (CVLs) increased sharply on July 1, 2021, following the abolition of statutory trading penalties for delay. Compulsory liquidations increase further after the end of the moratorium in February 2022. Overall, bankruptcies increased by about 50% in the months following this change and nearly tripled within six months.
Business bankruptcies are set to increase by 11% in 2021 and 57% in 2022, surpassing the 2019 level of 26% and standing at their highest level since 2009.
In 2019, 2022 this figure increased to 81%. Except this category of companies,
The number of bankruptcies remained 9% below 2019 levels. This explains why, despite the increase in the number of bankrupt companies, the impact in terms of unemployment levels and financial costs has been limited.
British companies are now in an environment without support measures and, therefore, in which corporate bankruptcy is once again determined by the companies’ liquidity levels, their profitability and their ability to meet their financial obligations. We return to a familiar reality, but not that easy for a reason.
In fact, many companies
imprisonment and would have to be repaid or refinanced in years to come. expenses
They will remain high relative to energy prices, commodity prices in general, and wage levels. Additionally, consumers see their real disposable income decline for the second year in a row in 2023.
This comes at a time when the low interest rate environment allowed
Many prosperous businesses have come to an end. Interest rates for private non-financial companies are expected to rise from an average of 3.1% in 2019 to 6% in the first quarter of 2023. And the outlook for the rate environment has only worsened since the March 2023 bankruptcy filing of Silicon Valley Bank. Banks that have already tightened their lending conditions before bankruptcy are expected to continue doing so in the coming months. This can trigger a spiral in which an increase in defaults restricts bank lending, which in turn damages the viability of companies, leading to new defaults.
Bankruptcies in sectors such as pharmaceuticals and chemicals are expected to remain around their 2019 levels in 2022. On the other hand, the agri-food sector was hit by rising costs and instability of supply chains: nearly 300 companies declared bankruptcy in 2022, 83% more than in 2019, and more in the first quarter of 2023 than in the same period in 2022 Bankruptcies were up 50%.
Other industries such as automotive, transportation, energy and construction also experienced large increases in bankruptcies, with the construction sector reporting the most companies to declare bankruptcy in 2022: approximately 5,200, a 34% increase since 2019.
Looking ahead to the coming months, companies in the hospitality, retail and construction sectors indicated they would be exposed to a moderate or significant risk of bankruptcy more often than average. Nearly a fifth of hotel companies indicate so, as they are very sensitive to wage increases and energy prices, as well as changes in consumption habits.
An analysis of the liquidation requests submitted and notifications of intent for possible liquidation issued at the sector level point to a new increase in bankruptcies in most sectors. A large number of bankrupt companies are likely to be registered in the metallurgical, chemical and construction sectors. These sectors operate in the context of reduced demand, while their costs remain high because they are high energy consumption sectors.
