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Global Economy

Corporate bankruptcies down in July

Despite the energy crisis and supply chain problems, the number of company insolvencies in Germany continues to decrease. According to provisional information from the Federal Statistical Office (Destatis), the number of regular insolvencies applied for in July fell by 4.2 percent compared to June of this year. In June, the number had already fallen by 7.6 percent compared to May.

The information is based on current announcements from all district courts in Germany. The numbers are part of the so-called experimental data – according to Destatis, they do not yet have the reliability of official statistics. As a leading indicator, however, the number of standard insolvency proceedings applied for gives indications of the development of corporate insolvencies according to the official insolvency statistics, the results of which are only available around two months later.

According to the Federal Statistical Office, 30 percent of insolvency proceedings are standard insolvency proceedings, which is what companies call insolvency proceedings. In contrast to consumer insolvencies, the procedure for companies does not provide for an out-of-court settlement attempt.

Construction industry with most insolvencies

The Federal Statistical Office also presented the final results for May today. In that month, 1,242 companies filed for bankruptcy, 11.3 percent more than a year earlier in May 2021. The construction industry was responsible for most company bankruptcies, with 233 companies from the industry filing for bankruptcy. In May a year ago, the figure was almost 30 percent lower at 180. Trade – including maintenance and repair – recorded the second highest number of business bankruptcies with 183 procedures, up 8.9 percent compared to the previous year.

The number of company insolvencies in the construction industry was already high last year. Despite the high demand, many construction companies applied for short-time work – triggered by supply bottlenecks and a shortage of materials, which resulted in the prices for the building materials rising sharply. In May, prices for rebar rose more than 70 percent year-on-year, and lumber rose more than 30 percent.

Incoming orders in construction are falling

"Inflation is making itself felt more and more in this country and is driving up the prices for energy and building materials. At the same time, construction interest rates are rising. It is no surprise that in May this year construction orders fell significantly by 7.5 percent compared to the previous year," said the managing director of the Central Association of the German Construction Industry, Felix Pakleppa, on incoming orders in the main construction trades. From January to May there was a real minus of 1.7 percent in incoming orders compared to 2021. "These are bleak prospects."

Corona-related special regulations for insolvencies

The Wiesbaden statisticians refer to the special regulations in the years 2020 and 2021 in the figures for insolvencies. Due to Corona, the obligation to file for insolvency for over-indebted companies was suspended from March 2020 until the end of 2020. This regulation continued to apply until the end of April 2021 for companies that had not yet received the state aid planned since November 1, 2020. For these companies, the obligation to apply for insolvency proceedings was only reinstated in full on May 1, 2021.

In order for companies to be able to start insolvency proceedings, they must meet certain requirements. Proceedings can be opened, for example, when companies are permanently unable to meet their payment obligations or debtors are very unlikely to be able to meet them. A possible over-indebtedness can also initiate the procedure. This is the case when the debtor's assets no longer cover the liabilities.

Consumer bankruptcies down

The number of consumer bankruptcies fell by 4.3 percent in May this year compared to the same month last year. "The development of consumer insolvencies since mid-2020 has to be viewed in connection with a law gradually shortening residual debt discharge procedures from six to three years," explains the Federal Statistical Office.

The new regulation has been in effect since October 2020 and enables those affected to make a faster economic start after insolvency proceedings, according to today's publication. The statisticians therefore assume that many over-indebted private individuals initially withheld their bankruptcy application in order to benefit from the new regulation. "This catch-up effect caused a sharp increase in consumer bankruptcies from the beginning of 2021 and now seems to have ended."

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