Corporate insolvencies in Germany are rising for the third year in a row. At the end of 2024, a new record high of 22,400 bankrupt companies was recorded.
A figure that was last seen at the end of 2016, with 21,560 insolvent companies. Until three years ago, the number of insolvencies was still down compared to the previous year. Since 2022, however, insolvencies have been affected by ever more significant increases. And these increases are accelerating. A slight increase of 3.8 percent in 2022, then a significant increase of almost 23 percent at the end of 2023, and now currently at the end of 2024, an estimated increase of 24.3 percent compared to the previous year.
Consumers are running out of money
The increase in insolvencies is not limited to companies. Consumer insolvencies have also increased - to over 72,000 people affected, an increase of 8.5 percent compared to the previous year. This figure is also at the level of the middle of the last decade (2017: 71,960 consumer insolvencies). And here, too, the number of cases decreased ten years ago - now it is increasing continuously. The so-called "other insolvencies" must also be included in the total number of insolvencies. Although these are also estate bankruptcies that are less economically relevant, they also include former self-employed people or shareholders in companies. In 2024, 26,800 insolvency applications were made by these micro-businesses - an increase of 6.3 percent. This brings the total number of insolvencies to 121,300 cases - an increase of over 10 percent. It should be noted that the figures are lower than those during the financial crisis of 2008 and 2009, when more than 30,000 affected companies had to close down due to corporate bankruptcies.
It's the economy
The reasons for this ongoing trend are well known: corporate bankruptcies are the result of weak economic development, with what is probably the second year of recession in a row, marked by weak exports, enormous costs and inflationary developments due to the pandemic and the war in Ukraine. In addition, the domestic economy is sluggish. Consumers have received wage increases, but given the difficult economic situation and the increasingly weaker developments on the labor market, they cannot decide to spend. Not only are companies' sales and profits crumbling, but financing is also causing problems. Even if the significant interest rate increase by the ECB is now being gradually reduced, loans still cost significantly more money than before the crisis. For example, the construction sector, characterized by a weak equity situation and now also by a decline in demand for new buildings, is doubly affected by the interest burden. It is becoming more difficult to service external financing, but investors and private home builders are also being deterred by the high financing costs.
Balance sheet analyses show that the service sector, which is characterized by a large number of smaller companies, is also rather poorly endowed with equity. With an increase of over 27 percent, this economic sector accounts for almost 60 percent of the total volume of corporate insolvencies. In the manufacturing sector, which has been hit by higher wage costs, increases in energy prices and weak exports, insolvencies also increased by almost 24 percent. With a change of plus 18.6 percent, trade has gotten off lightly among the main economic sectors. In 2024, there will be 72 insolvencies per 10,000 companies in Germany - in 2023 there were 60. In the construction sector there are 97 companies per 10,000 in stock. The manufacturing sector, on the other hand, is more stable, with a below-average number of 40 affected out of 10,000 companies in this economic sector.
Who should pay for this?
Even though many reforms to insolvency law have now made it possible to restructure companies in financial difficulties through an insolvency plan, the damage caused to creditors and employees remains enormous. The loss of receivables due to insolvencies is estimated at EUR 56 billion - a figure that is almost three times as high as ten years ago. Last year, it was EUR 31.2 billion - the increase is due to the large number of large insolvencies for which banks and suppliers provided large loans and services. Even though old claims are still settled in the course of restructuring, especially in large insolvencies, analyses show that significantly more than 90 percent of all creditors come away empty-handed in insolvency proceedings.
In many cases, when restructuring takes place, even outside of a previous insolvency, it is the employees who are the first to be affected. The estimate by Creditreform Wirtschaftsforschung therefore also includes employees who were laid off in advance to save costs. In 2024, around 320,000 employees will be affected by the bankruptcy of their employer. This is a sharp increase compared to the previous year, when 205,000 employees were affected - only in 2020 were there more employees affected, with 332,000 job losses. Some insolvent companies may still try to retain employees in times of a shortage of skilled workers, but younger and highly qualified employees in particular will reorient themselves. The age of the insolvent companies also plays an important role in the increase in job losses. Established companies that have been on the market for over 20 years have increased their share of the current number of corporate insolvencies to almost 18 percent compared to 2015 (15.8 percent). It can be assumed that older companies are also more likely to employ employees who have been there since the early years and will now have difficulties finding a new position.
In any case, there is no end in sight to the increase in corporate insolvencies, but also among formerly self-employed people and consumers, in the new year. The overall economic stagnation that is to be feared for 2025 will lead to a further increase in bankruptcies this year. We must expect a double-digit increase for 2025.
Source: Creditrefrom
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