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The bankruptcies come at the end of the year

The bankruptcy filings are historically low. However, in some industries, payment behavior has seriously deteriorated.

Companies in Germany are threatened with a wave of bankruptcies at the end of the year. This is at least what the credit agency Creditreform is expecting. "From the fourth quarter onwards there will be a significant increase in the number of applications," the general manager, Volker Ulbricht said in a video conference of the Association of Economic Journalists in Düsseldorf. This development has to be rated positively. However, insolvent companies have endangered the economic health of business partners and suppliers.

“We do not want to slide into an artificially kept zombie economy,” Ulbricht said.

Federal Finance Minister Olaf Scholz (SPD) refuted this assessment. Such a view seems "like a bloodless textbook speculation," he said at a banking conference in Frankfurt. It is a temporary measure to combat the crisis. "We have to make sure that nobody runs out of breath to continue doing business successfully later."

" Something went really wrong"

The Insolvency Suspension Act, was adopted in March and is now extended to the end of this year, avoiding over-indebted and insolvent companies from filing for bankruptcy. As a result, Creditreform recorded an 8 percent decline in insolvency applications in the first half of the year. In July, the number of applications was even 30 percent lower than last year. “It shows that something went really wrong,” Ulbricht said. For example, companies that would have been in trouble even without the COVID-19 pandemic and for which a special regulation should therefore not apply, had no obligation to file for insolvency.

The exemption extended until the end of the year only applies if a company is overindebted. Insolvent companies, that cannot pay more than 10 percent of what they owe within three weeks are not concerned by this exemption. More than nine out of ten bankruptcies happen precisely under this reason, which is why Creditreform expects an increase in bankruptcies from the fourth quarter. Over-indebted companies also pose a risk, but are still financially strong enough not to drag their business partners straight into the crisis with unpaid bills.

Worse payment behavior: travel agencies and hotels

In the same time, Creditreform has noted a significant deterioration in payment behavior, especially in travel agencies, the hotel industry and the entire cultural and recreational sector. Before the pandemic the concert organizers were paying at 15 days. They are now exceeding the payment terms by 28.8 days. Travel agencies have also almost doubled to 29.9 days. “That is blatant,” Ulbricht said. The payment history of an industry is usually extended or shortened by a maximum of two days in a year. However, there is no particular deterioration to be seen in retail.

There have already been major insolvency proceedings with companies such as Appelrath & Cüpper or Galeria Karstadt Kaufhof - especially when it comes to companies with many employees, more insolvencies can be observed than last year.

Smaller, less professionally organized companies are particularly at risk now. There is a warning from the trade association HDE stating that up to 50,000 stores could go bankrupt.

"In the retail sector, market exits are quiet, there is a clearance sale, then liquidation and closure, we do not see an increase in formal insolvencies.” Ulbricht states.

Online trade and e-commerce, which paid their bills on time within nine days anyway, has profited from the crisis and now pays them within a week - so it has been able to improve its value.

Figures from the Federal Employment Agency confirm the picture that Creditreform paints of the current situation. In July, according to internal documents of the authority, the number of completed applications for insolvency money was around 13000 (1000 less than last year). This is a benefit that is paid out to the employees of affected companies. However, with 737 million euros so far, the expenditure is significantly higher than the previous year (560 million euros), which could be due to the higher number of bankruptcies of companies with a high number of employees.

The federal agency is preparing for the eventuality that there could be more bankruptcies in winter. Therefore, a few time employees started to be trained to process relevant applications. At the end of August, the number of employees deployed for this purpose was 62 percent above the usual level.


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