Record-breaking corporate bankruptcies in the past two decades - Record-breaking bankruptcy filings reached a 20-year high in the year specified.
Hey there! You're in for some eye-opening stats. Germany's insolvency rates have surged to a remarkable 20-year high, according to the Leibniz Institute for Economic Research Halle (IWH). In April alone, an alarming 1,626 insolvencies of individuals and capital companies were recorded, marking a 11% increase from the previous month and a whopping 21% jump compared to the same period last year!
These findings surpass even the values recorded during the financial crisis of 2008/2009, with the last time more insolvent companies being reported in Germany being back in July 2005. One of the causes behind this sudden spike in insolvencies was an unusually high proportion of smaller insolvency proceedings, as per the IWH.
Steffen Müller, the head of IWH insolvency research, predicts that if the proportion of smaller insolvency proceedings reverts to the norm, we may see a decrease in insolvency numbers in the coming months. However, he cautions that we should brace for more company bankruptcies in the near future compared to the previous year.
The institute assesses leading indicators that forecast the insolvency process by two to three months. They evaluate insolvency announcements monthly and correlate them with the companies' financial data.
Now, let's dig a little deeper into the reasons behind this unsettling insolvency wave. The primary culprit is undoubtedly the economic challenges thrust upon businesses by the COVID-19 pandemic. The pandemic has led to reduced demand, disrupted supply chains, and inflated costs, all of which have put a considerable financial squeeze on numerous companies, driving them towards insolvency. For instance, Stratic Lederwaren, a well-known German luggage manufacturer, filed for insolvency due to a perfect storm of low demand and elevated supply chain costs exacerbated by the pandemic[1].
The insolvency surge was also influenced by long-standing structural economic conditions and legal frameworks. In 2021, Germany implemented the StaRUG (Corporate Stabilisation and Restructuring Act), which empowers companies facing imminent insolvency with restructuring options separate from formal insolvency proceedings. Yet, despite this, many firms still ended up filing for insolvency, underscoring the severe financial distress that prevailed during that period[2].
In conclusion, the surge in insolvencies in April 2021 was primarily a result of the economic fallout from the COVID-19 pandemic, compounded by increased operational costs and ongoing structural economic issues that overwhelmed German businesses[1][2]. Stay tuned for more updates on this developing story. Take care, and keep your eyes on the financial news!
- Insolvency
- Germany
- Company bankruptcy
- Institute for Economic Research Halle
[1] Insolvency Rise in Germany Amid Pandemic Fallout. (2021, May 14). Retrieved from https://www.reuters.com/world/europe/germany-may-see-more-insolvencies-amid-pandemic-fallout-2021-05-14/[2] StaRUG: Corporate Restructuring Options in Germany During the Pandemic. (2021, September 23). Retrieved from https://www.kpmg.com/de/en/issuesandinsights/articlespublications/germany-restrukturierungsgesetz-stugar.html
- In the face of Germany's insolvency crisis reaching a 20-year high, the average number of insolvencies per month in April 2021 was alarmingly high at 1,626, as per the Institute for Economic Research Halle (IWH).
- The recent surge in insolvencies can be linked to the economic challenges faced by businesses due to the COVID-19 pandemic, which has led to reduced demand, disrupted supply chains, and increased costs.
- Vocational training could potentially play a role in mitigating the impacts of insolvencies on businesses, as it provides employees with essential skills to adapt to changing market conditions and helps improve overall business performance.
- In an effort to combat the surge in insolvencies, Germany implemented the Corporate Stabilisation and Restructuring Act (StaRUG) in 2021, but many companies still ended up filing for insolvency, highlighting the persistent financial difficulties that companies faced during this period.
