1. Introduction: Good conditions mean continued drop in number of corporate insolvencies
New corporate insolvency cases continued to decline as 2016 got started. In the first three months of the year, 3.5% fewer companies filed than had done so at the same time last year. A total of 5,509 businesses went bankrupt between January and March.
“Germany remains a location with attractive conditions for business. Good infrastructure, a highly qualified workforce, and a continuing positive economic situation are ensuring that the vast majority of companies in Germany are continuing to do well,” Bürgel CEO Dr. Norbert Sellin said, commenting on the drop in corporate insolvency cases. There is a close relationship between economic development and the incidence of corporate insolvency. “Therefore, the main driver for the renewed decline in corporate insolvencies is the good economic environment,” said Sellin.
Financial information agency Bürgel expects the numbers to continue dropping through the year. “In the best case scenario, we expect about 22,500 companies to file for bankruptcy this year,” says Dr Sellin. This would be the seventh year in a row that corporate insolvencies have dropped and lowest number of new filings since the introduction of the new bankruptcy rules in 1999. By comparison, 2003, the year with the highest number of insolvencies since 1999, saw 39,320 cases, with 9,747 filed in the first quarter, thus 76.9% higher than the first three months of 2016.
Numerous geopolitical and global economic uncertainties pose a risk to the accuracy of this year’s forecast. Especially, the possibility of Brexit would be problematic for some German companies since the UK is Germany’s third most important export market in the world. “Brexit would have negative consequences for German exporters and could increase the number of insolvencies filed,” said Dr Sellin.
2. Corporate insolvencies fall, but losses increase
Despite declining numbers of corporate insolvencies, the forecast for creditor claims in the 1st quarter of 2016 climbed to €4.9 bn, up from €4.2 bn in 1st quarter 2015, representing a 16.7% increase in projected losses over the previous year. In almost a quarter of the cases, insolvency filings were rejected for lack of assets, i.e. the companies do not have enough assets even to cover the costs of the insolvency proceedings.
The average aggregate claims for each case of corporate insolvency filed between January and March came to just under €890,000. Creditors in Bremen reported the highest aggregate claims per case with an average of €3.25m. Also with average claims per case topping €1m were the states of Hesse (about €2,05m), Lower Saxony (about €1.545m), Hamburg (about 1.385m), and Baden-Wuerttemberg (about €1.1m) . Saarland, by contrast, saw average aggregate claims per case of less than €173,000, the lowest figure nationwide. In the absolute analysis, the highest creditor claims came from North Rhine-Westphalia. The 1,727 corporate insolvencies filed in NRW during the 1st quarter of 2016 had total claims worth €1.4 bn.
3. Corporate insolvencies per state: Bremen, North Rhine-Westphalia, and Saarland lead the insolvency statistics
In absolute numbers, most of the 5,509 corporate insolvencies were filed in North-Rhine Westphalia (1,727), Bavaria (689), Lower Saxony (463), and Baden-Wuerttemberg (422). More meaningful is a pro-rated perspective. This shows that the lowest ratio of insolvency filings in the first quarter of 2016 took place in Baden-Wuerttemberg (9 per 10,000 companies), followed by Thuringia (10), Bavaria (11), and Rhineland Palatinate (12). The national average was 17 insolvencies per 10,000 companies. Also below the national average were the states of Brandenburg and Mecklenburg-Western Pomerania (each with 13 insolvencies per 10,000 companies) and Hesse (15). Lower Saxony, with 17 bankruptcies per 10,000 companies, matched the national average.
The most difficult situation is in Bremen with 34 insolvencies per 10,000 companies. North Rhine-Westphalia and Saarland (26) and Hamburg (25) are also facing difficulties. Berlin (23), Saxony-Anhalt and Schleswig-Holstein (both 21), and Saxony (20) all also had insolvency ratios above the national average.
4. Percentage changes: Thuringia sees 24% drop in bankruptcies while Saxony sees 16.9% increase
If one looks at the percentage changes compared to the first quarter of 2015, Saxony is suffering a decline. In Saxony, the number of insolvencies rose by 16.9%, the largest increase nationwide. Saarland (+11.3%) and Saxony-Anhalt (+8.4%), Brandenburg (+8.3%), Lower Saxony (+3.3%) and Bavaria (+3.1%) all posted increases in the number of bankruptcies. Thuringia, meanwhile, apparently is experiencing a turnaround, dropping 24% from its figures from last year. There were also significant decreases in Rhineland-Palatinate (-19.6%), Schleswig-Holstein (-9.9%), Hesse (-9.7%), North Rhine-Westphalia (-8.1%) and Mecklenburg-Western Pomerania (-5.2%). In Bremen, saw 76 insolvencies filed in the first quarter of 2016, the same number as filed a year earlier. Below-average decreases were also recorded in Berlin (-0.6%), Baden-Wuerttemberg (-1.9%), and Hamburg (-2.2%).
5. Corporate insolvencies by legal forms: two forms dominate the insolvency statistics
As in recent years, it was mostly unregistered commercial enterprises and individual companies and private limited companies (Ltd.) that filed the most insolvency petitions between January and the end of March, representing 80.1% of all filings in the first quarter of 2016. The Entrepreneur Company (limited liability) continued to see a growing number of insolvency filings, up 5.7% to 500 cases.
6. Corporate insolvencies by company age: more older companies affected by insolvency.
The first quarter of 2016 saw 1,280 companies that were less than two years old file for bankruptcy protection. Most often these start-ups fail due to a poor underlying idea for the business. If not marketable or the products are not produced efficiently, the company has no chance of survival. Another reason lies in the frequent difficulty start-ups have obtaining financing. In addition, the company founders have to deal with market changes, strategic mistakes, and lack of expertise. On a positive note, the number of companies less than 2 years old dropped by 7.9%, while more companies with more than 10 years on their books have taken the step (+4.9%).
7. Causes of corporate insolvencies: numerous factors responsible for insolvency
For many companies that need to petition for bankruptcy there is no one reason for insolvency. Rather, their crises have arisen from the interaction of different factors. The current economic situation is only one factor in the ultimate success or failure of enterprises. Corporate insolvencies also arise from other reasons, both internal and external to the company. Changes in legal framework, technological change, changes in exchange rates in foreign trade or the insolvency of a major business partner (domino effect) are examples of outside influences that can steer a company down the wrong financial path. Internal causes, such as low equity base, defects in the product area (quality, price, product attributes), management problems or mistakes can lie in all functional areas and trigger an insolvency.