The bankruptcies come at the end of the year

The bankruptcy filings are historically low. In some industries, however, the payment behavior has deteriorated alarmingly.

Everything has to go before it closes: Karstadt on Frankfurt's Zeil shopping street

Des companies in Germany are threatened with a wave of bankruptcies at the end of the year. At least the credit agency Creditreform is expecting this. “From the fourth quarter onwards there will be a significant increase in the number of applications,” said its general manager Volker Ulbricht in a video conference of the economic journalists’ association in Düsseldorf. This development should be rated positively, however, since insolvent companies endanger the economic health of business partners and suppliers.

“It is not desirable that we slide into an artificially kept zombie economy,” said Ulbricht. However, Federal Finance Minister Olaf Scholz (SPD) contradicted this assessment. Such a view seems to him “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 on.”

“Went really wrong”

The Insolvency Suspension Act, passed in March and now extended to the end of this year, exempted 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 below the previous year’s figure. “That shows that something went really wrong,” said Ulbricht. For example, companies that would have been in trouble even without the corona pandemic and for which a special regulation should therefore not apply, erroneously assumed that they had no obligation to file for insolvency.

The extended exemption until the end of the year only applies if a company is over-indebted – and not if it is insolvent, i.e. cannot pay more than 10 percent of its due dates within three weeks. More than nine out of ten bankruptcies fall under precisely this reason for bankruptcy, which is why Creditreform expects an increase in bankruptcies as early as the fourth quarter. Over-indebted companies also pose a risk, but are still sufficiently liquid and therefore do not drag their business partners straight into the crisis with unpaid bills.

Worse payment behavior at travel agencies and hotels

At 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. While the concert organizers were still 15 days before the pandemic, they are now exceeding the payment terms by 28.8 days. Travel agencies have also almost doubled to 29.9 days. “That is blatant,” said Ulbricht. Usually, the payment history of an industry is extended or shortened by a maximum of two days in a year. A particular deterioration in retail, however, is not to be seen. There have already been major insolvency proceedings there 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 in the previous year.

Smaller, less professionally organized companies in particular are now at risk. Ulbricht does not formally share the warning from the trade association HDE that up to 50,000 dealers could go bankrupt. “In the retail sector, market exits are silent, there is a sale, then liquidation and closure, we do not see an increase in formal bankruptcies.” Online retailing and e-commerce, which are already quite punctual with nine days, count as beneficiaries of the crisis Invoices paid, now within a week – so he was able to improve the value.

Figures from the Federal Employment Agency confirm the picture that Creditreform paints of the current situation. The number of completed applications for insolvency money, a benefit that is paid to the employees of affected companies, was around 13,000 in July, according to internal documents of the authority, which was a good 1000 less than a year ago. However, at 737 million euros so far, the expenditures are significantly higher than in the previous year (560 million euros), which could be due to the higher number of bankruptcies of companies with many employees.

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