The feared wave of bankruptcies did not occur in 2020, and the percentage of business failures actually fell compared to 2019. This is due to the emergency aid provided by the government, but the trend will inevitably reverse in 2021. The challenge will then be to preserve viable, healthy businesses ahead of the Covid-19 health crisis.
The lag in the wave of business bankruptcies
While a study by Banque Populaire - Caisse d'Épargne predicted no fewer than 62,000 business failures in 2020, in reality 34,000 were recorded during the year. What's more, according to data from France's commercial courts, 7465 new collective proceedings were registered between September 1 and November 30, 2020, down 37% on the same period in 2019.
So, despite a recession unprecedented since the Second World War, the wave of bankruptcies has not yet arrived. However, it is inevitable, and the various state aid schemes in place are keeping a considerable number of companies artificially alive.
In addition, URSSAF is currently not taking any companies to court, which explains the delay in bankruptcies, which should occur in 2021.
Debt restructuring to maintain productivity and employment
According to a report by the Conseil d'analyse économique (CAE), the sectors most affected by the health crisis are likely to see a 26% increase in bankruptcies. The bankruptcy rate in the retail and personal services sector could rise from 1.1% in 2019 to 1.8% in 2021.
According to the CAE, the challenge will be to save companies that were healthy before the pandemic, restructuring their debt if necessary to enable them to maintain their productivity, and to remove the safety net that prevents companies already in peril before the health crisis from going under.
"In a normal situation, the "exit" of the least efficient companies contributes positively to productivity and growth: by freeing up economic factors (labor, capital, premises, etc.) that are poorly used, it enables the development of more efficient companies and the arrival of new entrants, and therefore the reallocation of these factors towards jobs that are more beneficial to the community," reads the CAE note.
By artificially keeping alive companies that were unviable before the pandemic, the entire French economy could be impacted.
"The CAE recommends preserving viable companies - i.e. those capable of producing a positive present-value profit track record - even if they have become insolvent as a result of increased indebtedness and temporarily worsened operating conditions, and suggests targeting aid at sectors with a large pool of jobs that are particularly at risk, such as trade and manufacturing.