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Company insolvencies: alarming signs

Published on April 19, 2021 - 3 mins reading time
Bank watch
While the number of company insolvencies remained very low in the 1st quarter of 2021, there are a number of warning signs to be taken seriously. Since March, for example, 8 out of 10 companies going to court as part of a collective procedure have been liquidated directly.

Bankruptcies: the calm before the storm?

According to the latest Altares study on business failures in France in the first quarter of 2021, the much-feared wave of bankruptcies has not yet begun.

7406 insolvency proceedings were opened between January and March, 32.1% less than in the first quarter of 2020. Between June and September 2020, 6,700 insolvencies were recorded, down 35% on the same period in 2019.

Insolvencies therefore remain at a very low level, around half that of the first quarter of 2019, but this does not mean that companies are in good health. In fact, the extension of various public aids and schemes, such aspartial activity, the solidarity fund and state-guaranteed loans, are keeping a number of companies afloat, and there is a real risk that they will go out of business when these measures come to an end.

The proportion of court-ordered liquidations is on the rise

The first worrying sign is that, since March 2021, 79% of judgments handed down by the courts as part of insolvency proceedings have led directly to judicial liquidation. In recent years, before the start of the health crisis, this percentage was around 68%.

Most of the companies involved in these liquidations are very small businesses, with fewer than 5 employees.

According to Altares, this growing proportion of compulsory liquidations can be explained in two ways:

  1. On the one hand, since URSSAF has not been enforcing debt collection since the start of the crisis, company directors are not necessarily aware of the extent of the difficulties until they are up against the wall.
  2. On the other hand, exhaustion is the order of the day: rather than seeking a business continuation plan, company directors file their declaration of cessation of payments and accept judicial liquidation without having the strength to take any further steps.

According to Altares forecasts, the situation is set to worsen in the second half of 2021, with a total of 40,000 to 45,000 business failures over the year. Here again, the situation will not be a true reflection of the health of businesses, since the effect of public aid should still be felt. By way of comparison, 52,000 business failures were recorded in 2019.