Experts on bankruptcies and the related proceedings point out that we had an extremely low number of bankruptcies last year, and the situation is similar throughout Europe. Experts agree that with the anti-corona legislative measures, the state has helped many companies survive, while the companies that were already operating badly before the crisis will likely close their doors after the measures are lifted. Many argue that the businesses will only survive because of aid and credit delays and that their recovery will depend completely on the next steps, as well as the recovery of the economy. “In any case, the exit strategy that the state will adopt after the end of the coronavirus crisis will be very important,” Lahovnik said.
The number of bankruptcies among legal and natural persons fell dramatically in the last year, due to the government measures. “In 2020, we had the lowest number of bankruptcies in Slovenia in the last seven years, because the government quickly and decisively reacted to the global corona crisis,” said the expert advisory group coordinator Matej Lahovnik. He believes that the number of bankruptcies will increase after the crisis will end, as many companies that were already operating badly before the crisis will likely close their doors. “All those who were already in a bad place before the crisis will most likely close their doors after the crisis is over, as the government has sort of been keeping them alive,” he explained.
The newspaper Finance also believes that the main reason for the decline in bankruptcies is the fact that the state provided financial help for companies that should have declared bankruptcy a long time ago, due to their unsustainable business models, but have used the state money to stay above the surface for a few extra months. This is also partially due to the non-functioning of the courts, as well as the moratorium on the bankruptcies and loan repayments.
Lahovnik pointed out that we can see a similar thing happening all over Europe, as the number of bankruptcies has also been in decline across the entire EU. “The countries are keeping the so-called zombies alive with the state aid, but they will not be able to survive in the long run,” he explained. As the lawyer and insolvency administrator Aleš Velkaverh explained, the demand for insolvency and all related proceedings has decreased in their law firm. Meanwhile, other people explain, similarly to what Lahovnik said, that by rescheduling and postponing the deadlines for the repayments of the loans, the government has made it possible for the companies to survive. “If there was no rescheduling or deferral of the loans, the banks would quickly cash in the collateral in the event of non-payment, which would lead to even more bankruptcies,” the insolvency administrator Damjan Belič explained.
Last year, the number of bankruptcies dropped sharply. In 2020, Slovenian courts initiated 1,125 insolvency proceedings against legal entities, which is thirteen percent less than in 2019 and almost a fifth (19 percent) less than in the record year of 2018, according to publicly available data from AJPES. The last time there were fewer bankruptcies than this year in Slovenia, was in 2013 when 941 companies went bankrupt. However, the number of filed claims for bankruptcy proceedings actually increased last year – a total of 866 million euros in claims were filed in corporate bankruptcies last year, which is slightly less than 10 percent more than the year before, according to the Supreme Court.
In France, 32.184 companies went bankrupt last year, which is about 20 thousand or 38 percent less than the year before, Bloomberg recently reported. The last time France had such a low number of bankruptcies was 33 years ago, in 1987. The analytical house Altares estimated that without state aid, 80,000 companies would go bankrupt in France, but at the same time, they also predicted strong growth in the number of bankruptcies this and the next year. The decline in bankruptcies was also recorded in the United Kingdom, Germany and Spain last year. As early as the end of October, the German Ifo Institute for Economic Research published a study which found that the German government had helped prevent the growth of the number of bankruptcies with state aid, but on the other hand, it also created the aforementioned zombie company models. Since such companies cannot survive in the medium and long term, the economists in the study expect a sharp increase in the number of bankruptcies after the expiration of state aid.
The number of personal bankruptcies decreased even more than the number of bankruptcies of legal entities, and the number has been steadily declining since 2016 – last year, there were 25 percent less of personal bankruptcies than in 2019. According to the Supreme Court, 1.416 natural persons went bankrupt last year, which is almost 500 people or 25 percent less than the year before. The number of reported claims in personal bankruptcies was also lower, amounting to 215 million euros, which is almost a third (32 percent) less than in 2019. As it has been explained, last year’s bankruptcies were not the result of the coronavirus crisis, but of accumulated problems from the previous years. However, coronavirus could be used as an excuse for the collapse of many businesses. “I anticipate that the reference to non-capability to conduct business will be used by all companies that were “ripe” for insolvency proceedings before the crisis,” Marko Zaman, an insolvency administrator and the president of the Chamber of Insolvency Administrators of Slovenia said. Meanwhile, no significant deviations have been observed in the number of compulsory settlements.
An increase in the number of bankruptcies is expected after state aid stops
The number of bankruptcies will likely increase after the state measures are lifted, and therefore, Lahovnik emphasised that the country’s exit strategy after the epidemic will be very important. “I expect that the number of bankruptcies could increase this spring or when the state aid stops. However, this will also largely depend on how the state behaves. Namely, it has the possibility to extend the validity of the measures, to a lesser extent – even after the epidemic, and therefore enable a normal way out of the crisis,” Belič said.
According to Belič, the number of personal bankruptcies will also be related to the economic situation in the future. “Companies will need restructuring after the end of the epidemic and the expiration of state aid. If they lay off people, this will also have an impact on the number of unemployed people and their living standards. If individuals are unable to repay loans due to a decline in income, the banks will cash in the collateral, and we can expect more personal bankruptcies,” Belič added. “I believe that we might experience an increase in the number of bankruptcies in the second half of the year if we do not prepare for the updated restructuring framework in time,” the president of the Chamber of Insolvency Administrator, Marko Zaman, said.
Sara Rančigaj
