How many people go bankrupt every year

How big is the bankruptcy wave?

In the course of the current corona crisis, the number of corporate bankruptcies will also increase. However, there is much to suggest that there will be no massive wave of bankruptcies

In 2003 and 2004 there were 39,000 corporate insolvencies in Germany - a sad record and a reflection of the economic situation at the time. Since then, through painful but necessary reforms, Germany has developed from a “sick man” to an anchor of stability for Europe. Accordingly, the number of insolvencies has continuously halved to less than 19,000 in 2019. This downward trend was only briefly interrupted during the 2008/2009 financial crisis.

The positive development has continued so far this year. In the first half of the year, the insolvency figures were well below the corresponding figure for the previous year (6.2%) and the development so far in the second half of the year does not yet indicate a trend reversal. Rather, the data so far and the bankruptcy announcements for August and September indicate that the downward trend has recently intensified.

The current decline in insolvencies is often justified by the fact that the obligation to file for insolvency was temporarily suspended in March of this year. The obligation to file for insolvency in the event of insolvency applies again from October; but over-indebted but still liquid companies remain exempt from the notification requirement until the end of the year.

The current insolvency figures therefore only reflect the situation of the companies to a very limited extent. The question arises as to how the bankruptcy numbers will develop. Is there a threat of a huge wave of insolvencies in the next few months or will the development feared by some not happen?

Company surveys speak for many bankruptcies

At first glance, company surveys suggest nothing good. When the Munich Ifo Institute surveyed around 8,000 companies in June, 21% of company representatives rated the corona-related restrictions as "threatening their very existence". Extrapolated to the approximately 3.5 million companies in Germany, that would mean over 700,000 impending bankruptcies.

Results of the new company survey by Kantar on the probability of insolvency

On behalf of the BMWi, the market and social research institute Kantar surveyed companies in Germany in spring, summer and autumn about how they were affected by the corona pandemic on the basis of a representative sample. The results of the third wave of surveys in September / October also included specific questions on the risk of insolvency.

Eight out of ten companies therefore considered insolvency due to the pandemic to be unlikely or very unlikely at the time of the survey. On the other hand, five percent of the companies expected a specific risk of bankruptcy. According to the self-assessment of the companies, there is a higher risk of insolvency in particular in the creative industries / entertainment, logistics / transport and accommodation / gastronomy sectors and affects small companies with fewer than ten employees somewhat more often than larger companies.

Pandemic financing bottlenecks existed in almost half of the companies, and to a large extent in around one in five companies. However, the majority of these companies seemed to assume that they would be able to overcome existing funding bottlenecks, for example by using state aid measures. Almost every tenth company with acute financial difficulties feared bankruptcy in the last survey. At the time of the surveys in April, this assessment was still shared by around one in five companies, i.e. by exactly twice as many.

Even if these figures initially suggest a relaxation since the outbreak of the corona pandemic, it remains to be seen how the situation of companies will develop in view of the increasing number of infections.

In the same month, in a DIHK survey, ten percent of the more than 8,000 companies surveyed reported that they were threatened with bankruptcy, i.e. around 350,000 companies.

According to a survey by the market and social research institute Kantar on behalf of the Federal Ministry of Economics, 5% of the companies considered bankruptcy to be likely or very likely in the period from mid-September to mid-October, which corresponds to 175,000 companies based on the population.

Those numbers would represent a dramatic change in the corporate landscape. There is no doubt that we are currently experiencing a recession of historic proportions that poses major challenges for many entrepreneurs. However, there are a number of experiences that speak against such a massive increase in corporate insolvencies.

Historical experiences from waves of bankruptcies

In times of crisis, the number of corporate bankruptcies usually increases. The highest annual increases occurred in the course of the oil price crises in 1974 (+50%) and 1982 (+40%), after the reunification boom came to an end (1993: +39%) and after the IT bubble burst (2002 : + 16%). In the course of the financial and economic crisis of 2008/2009, the number of corporate insolvencies "only" increased by 12%.

Based on this historical experience, the annual bankruptcies could increase by up to 50% in the coming year - that would be around 9,200 additional bankruptcies. If the figures develop as they did during the financial crisis in 2009, corporate bankruptcies would rise by 12%, which would correspond to 2,200 additional bankruptcies.

Historical experience suggests a four-digit increase.

For comparison: six-digit insolvency figures, as suggested by the company surveys mentioned, imply an increase in company insolvencies of at least 400% compared to the previous year. With 735,000 bankruptcies (ifo survey), the numbers would even increase by over 3,800%, i.e. almost forty-fold.

The largest multi-year bankruptcy wave occurred in the 1990s after reunification: from 1990 to 1998, the number of annual corporate bankruptcies tripled from around 9,000 to 28,000 in the wake of a "cleansing crisis". Before that, there were extensive waves of bankruptcies over several years, including in the 1970s and 1980s (1969 to 1975, 1980 to 1985), in which the number of corporate bankruptcies had also more than doubled.

If one also assumes the most serious historical experience to date (1990s), the number of insolvencies would have to triple over the next few years. The number of annual corporate bankruptcies could therefore rise from just under 19,000 to just under 60,000 bankruptcies per year; that would add up to six-figure overall effects over time. Despite all the uniqueness of the current corona crisis, it can be seriously doubted that the years after reunification with all its political, economic and social structural breaks represent a suitable reference for assessing future insolvency events.

Bankruptcy forecasts see a moderate increase

Admittedly, a look in the rearview mirror is of only limited use when navigating through unknown terrain like a global pandemic. However, there are now a large number of forecasts for assessing future insolvency events. As a rule, this not only includes the (expected) economic development, which naturally has a major influence on the insolvency figures, but also other framework conditions such as the balance sheet situation of companies and state support measures for the economy.

When it comes to economic development, most forecasters assume that German economic output will collapse by around 5%. In its autumn projection, the federal government expects that real, i.e. price-adjusted, gross domestic product will shrink by 5.5% this year and rise again by 4.4% in the coming year. The economic slump seems deep, but limited in time.

Another important factor for the insolvency risk of companies is the balance sheet situation, in particular the endowment with equity. Here, the starting position of the companies has improved significantly over the past 20 years. This is the conclusion reached, for example, by DZ Bank and the Federal Association of German Volksbanks and Raiffeisenbanks (BVR) as part of an evaluation of the annual financial statements of German medium-sized companies. This showed that the equity ratio quadrupled between 2001 and 2018 from 7.5% to 27.4%. The latest KfW SME Panel also underlines the continuous expansion of the equity base. In 2019, this was almost 32% (median: 25%), with smaller companies comparatively lower, but still solid and significantly increased values ​​at an average of 22%.

On this basis, the Institut der deutschen Wirtschaft in Cologne comes to the conclusion that up to 5,600 additional corporate insolvencies could be expected for this year - without the suspension of the filing obligation - an increase of 30%. The BVR banking association and the Bundesbank come to a similar level in their new financial stability report. The Bank for International Settlements is forecasting a total of 14% increase in corporate bankruptcies by 2021, which means around 2,600 additional bankruptcies. The credit insurer Euler Hermes expects a 12% increase in insolvencies for Germany by 2021 (+2,250 insolvencies), while the credit insurance company Atradius expects almost no increase (+1%) for the years 2020 and 2021 together.

IW Cologne: Up to 30% more bankruptcies

State aid measures support the economy and prevent bankruptcies

Overall, the experts have so far agreed that the insolvency figures will increase, but in all probability no dramatic development is to be feared. This is also due to the fact that extensive fiscal and monetary policy measures have been taken around the world to cushion the effects of the crisis.

Euler Hermes sees 12% more bankruptcies.

In an international comparison, Germany has put together one of the largest aid packages to support the economy, also thanks to its solid budget situation. The economic and crisis management package from June 2020 amounts to 140 billion euros for 2020 and 2021 alone. The majority of the measures are aimed at stabilizing and stimulating the economy in the short term. In the meantime, the measures adopted have been expanded in several places and access has been made easier.

In the summer, the Mannheim company panel asked numerous companies whether they would survive the current crisis without government aid. A total of 50% of the companies surveyed stated that they had only survived the crisis through support measures. In the catering sector, the proportion was even 80%. This also indicates that government support measures such as short-time work benefits, emergency aid and quick loans have prevented companies from going bankrupt.

The quantitative effects of these measures, especially on bankruptcy, cannot be reliably estimated at this point in time. It is, however, significant that the number of insolvencies is also declining in those countries that have not suspended the obligation to file for insolvency, such as Japan, the Netherlands and Sweden. This suggests that government countermeasures prevented or at least delayed bankruptcies.

The German economy had already passed the economic low point in the spring. After that, not only did the production and order numbers improve, but also the mood in companies. As the economy picks up, the company's insolvency risks tend to decrease. The repeated Corona flash surveys by the DIHK showed that fewer and fewer companies had worried about the risk of bankruptcy between spring and summer. While 18% of companies were still threatened with bankruptcy in March, this proportion fell to 13% in May and was finally 10% in June.

According to the surveys in June, the economic situation had improved noticeably - in the third quarter economic output rose by around 8%. Presumably, therefore, fewer companies would have described themselves as threatened with insolvency in the meantime. However, the current infection rate and the containment measures that have been decided should initially weigh on the economy towards the end of the year.

The big wave of bankruptcies does not materialize

The increase in corporate insolvencies in the wake of the corona crisis could be on the order of previous recessions. But the consequences, precisely because they are not the result of market processes, but of government-justified restrictions, represent a great deal of damage to our economy. Heavy burdens for the affected entrepreneurs, employees and also the creditors go hand in hand with it.

To speak of a “lull” would not do justice to the extent of the crisis. Overall, however, there is a lot to suggest that the upcoming wave of insolvencies will be comparatively moderate. Additional insolvencies in the four-digit range, which corresponds to an increase of up to 50%, are entirely plausible in the light of historical experience and in view of the current forecasts and expert assessments. Horror scenarios with a multiplication of the number of insolvencies, however, appear unrealistic, even in view of the current developments. The big wave of bankruptcies is unlikely to happen.

The pandemic and its consequences are causing great damage to our economy.

Nevertheless, the current Corona crisis is unique and the uncertainty of such "forecasts" remains high. The current development of the number of infections in Germany and around the world and the associated containment measures are currently not helping to reduce this uncertainty. In the medium term, however, they will help to stabilize economic development.

Delayed statistics and alternative approaches

Official insolvency figures are only available with a delay of a few months. The bankruptcies are only recorded in the statistics when they have been formally opened, usually two to three months after the application has been submitted to the local court. The statistics of the opened bankruptcy applications are published about 70 days later. In other words: whether the number of insolvency applications will rise sharply in October - after extensive reactivation of the obligation to file for insolvency - we will not know reliably until next spring (application in October 2020, opening in January 2021, publication of statistics in April 2021); Unofficial data based on bankruptcy announcements are at least available in February, so there is still a long delay.

New, digital information sources such as Google search queries may be able to provide short-term information about how bankruptcy events are developing at the current edge. Such a procedure has been used in the past to follow developments in the labor market or to identify flu outbreaks at an early stage. In the case of bankruptcies, for example, it can be assumed that entrepreneurs will inquire about their rights and obligations or specific procedural steps on the Internet in the event of an impending bankruptcy. Such analyzes do not seem to be available so far, but could provide interesting and useful insights for economic policy. So far, the search queries on the topic of "insolvency" have not been conspicuous and do not show any increase.

So far, online searches on bankruptcies have not shown any increase.

With all these considerations, however, it should be noted that the sheer number of corporate bankruptcies describes the bankruptcy process only very imprecisely. Current insolvency figures indicate, for example, that economically “larger” companies with higher claims and more employees are currently filing for insolvency. So it is not just a question of the quantity but also the quality of the bankruptcies.

In addition, it must be taken into account that in economically difficult times, companies can also exit the market in other ways, for example through company abandonment or mergers. Also
these "exits" have an impact on the competitive situation or the employees and should therefore be followed closely.


Dr. Sören Enkelmann & Juliane Stolle
Presentation: Economic Policy Analysis

Dr. Wolfram Wilde
Presentation: International Economic and Monetary Issues
[email protected]