Throughout the whole of 2013 a total of 26,733 companies in Germany became insolvent – 9.7 percent less than during the previous year. “We are currently seeing the fourth consecutive decrease in corporate insolvency figures,” was the comment by Bürgel Managing Director, Dr. Norbert Sellin, on the latest values. As growth in the German economy amounted to 0.4 percent in 2013 and is expected to rise again during the current year to around 1.5 to 1.7 percent, according to the experts, Bürgel also forecasts less corporate insolvencies during the present reporting year: “Insolvency statistics illustrate the past – for this reason less companies again will have to file for bankruptcy in 2014 thanks to the economic situation”, says Dr. Sellin. Bürgel expects a decrease to 26,200 insolvencies in 2014.
Risks in the annual forecast
However, there are risks with the annual forecasts. For example, the economy in some of the member states of the euro area is still affected by insecurity. As soon as other developments take place in this respect, the insolvency forecast for 2014 should also be adjusted. In addition, there is a threat of company insolvencies in Germany in 2014 caused by delays in the transition to the payment system SEPA. Small companies as well as associations in particular are behind schedule. A lot of companies are not aware of the fact that they will no longer be able to collect money by direct debit with the old, so-far used procedure if they do not prepare the transition. "An impairment of the liquidity supply of the companies may occur, a situation which at worst could entail insolvency", says the Managing Director of Bürgel.
Domestic demand supports the economy
Dr. Sellin sees the reasons for the current development in case numbers in the stable and positive economic environment with an economic growth rate of 0.4 percent, which is particularly due to the strong and robust domestic demand. This in turn has a positive effect on the employment rate and wage increases. The job market appeared to be in a good condition throughout the whole year. “The companies benefit from the higher domestic demand on the part of private consumers“, says Dr. Sellin. After all, exports only rose by 0.6 percent in 2013, after a plus of 3.2 percent in 2012. The poor economy in the Euro Zone and the slump on important markets such as China were detrimental to the export business. But also the good payment behaviour of companies prevented further insolvencies. Less payment defaults are beneficial to the liquidity of suppliers and loaners so that in 2013 less domino effects were registered where insolvent companies also caused liquidity bottlenecks for other companies and in extreme cases dragged these with them into bankruptcy. By the end of 2013 16.1 percent of the companies in Germany fulfilled their payment obligations either late or not at all.
Negative aspects blur the euphoria
“However, several negative aspects blur this euphoria“, Dr. Sellin analyses. Insolvencies are still a problem of high economic significance. As a result of corporate insolvencies damage amounting to billions of euros is caused each year to companies and creditors. In Germany this figure was around 26.5 billion euros in 2013. Secondly, the number of cases of insolvent companies is on the rise in four federal states – especially in Hamburg with a plus of 21.9 percent. Thirdly, corporate insolvencies are on the rise in individual sectors or are stagnating at an above-average level. Especially the forwarding and logistics sector, the printing industry, the mail order and internet trade, the solar industry and the building sector are hit to an above-average extent by corporate insolvencies. Fourthly, a quarter (26.7 percent) of the companies that had to file for bankruptcy during the survey period 2013, was only in business for up to two years. This is an indication that new entrepreneurs are still having a tough time. Particularly in the start-up phase a lack of capital backing will cause financial difficulties for young companies. New companies also often fail if their business ideas prove to be not in line with the market. And the founders are especially affected by changes in the market, wrong strategic decisions and lacking expertise. Fifthly, the so-called “Unternehmergesellschaft“ (with limited liability) remains a risky legal form. In comparison with the previous year the number of cases in this segment rose in 2013 by 16.5 percent. And in sixth place, corporate insolvencies always lead to a loss of jobs. Bürgel reckons that around 150,000 people were hit by this in 2013.
North Rhine-Westphalia has the most corporate insolvencies
In comparison with all federal states, both in the absolute and relative values (“Insolvency Rate“) most corporate insolvencies could be allocated to North Rhine-Westphalia – with 9,256 insolvent companies or rather 123 cases per 10,000 companies. This was followed by Saxony-Anhalt (89 insolvencies per 10,000 companies), Bremen (86) and Berlin (81). The federal average lies at 74 insolvencies per 10,000 companies. The least number of corporate insolvencies was registered on the other hand in Baden-Württemberg – here only 42 companies in 10,000 had to file for bankruptcy - Bavaria (48) and Mecklenburg-Western Pomerania (49).
Highest rise in Hamburg
Although the number of corporate insolvencies fell in 2013 by 9.7 percent on a federal average in comparison with the previous year, the numbers of cases of insolvency rose in four of the sixteen federal states. In the lead, Hamburg had to cope with an increase by 21,9 percent to 907 insolvencies. And also in Saxony-Anhalt (plus 5.3 percent), Hesse (plus 4.2 percent) and Berlin (plus 0.5 percent) insolvencies increased during the survey period. On the other hand, the strongest decline was in North Rhine-Westphalia with minus 17.2 percent. Considerably less bankruptcy proceedings also occurred during last year in Schleswig-Holstein (minus 14.6 percent), Thuringia (minus 13.5 percent) and Mecklenburg-Western Pomerania (minus 12.9 percent).
Still many young companies affected
39.3 percent (10,511 cases) of all corporate insolvencies in Germany can be allocated to the small trade sector. In the case of GmbHs (private limited liability companies) there were 9,997 insolvency cases (share of the insolvency statistics: 37.4 percent). The meanwhile third-largest share of 6.7 percent of the corporate insolvency cases in Germany is comprised of the legal form “Unternehmergesellschaft” (limited liability). In comparison with the previous year, the insolvency cases within this legal form rose by 16.5 percent.
Main causes of corporate insolvencies
The main causes for corporate bankruptcies still remain the lack of new orders, or the cancellation or postponement of such. Secondly, consequential insolvencies cause insolvent companies to drag other market participants with them into the insolvency whirlpool. “Even healthy companies can get into financial difficulties as around 15 percent of the corporate insolvencies are still hit by domino effects”, Dr. Sellin explains. Thirdly, management errors are responsible for an increased insolvency risk. “An incorrect assessment of the market or a lack of competitiveness can rapidly lead to failure,” the Bürgel managing director sums up. In addition there are criteria such as a lack of corporate planning, no controlling, or insufficient or a total absence of debtor management.