Business failures intensify in Q2

After remaining at a very low level thanks to the economic support measures deployed by the government at the height of the health crisis, the number of business failures is rising again. In the second quarter of 2022, insolvencies accelerated.

Business insolvencies: low but rising fast

The various business support measures put in place by the French government, from PGE to short-time working and deferral of social security contributions, have enabled many companies in difficulty to continue trading without having to close their doors for good.

The gradual disappearance of these public subsidies has led to an increase in the number of business failures, although in the first half of 2022 they remain at a much lower level than before the start of the health crisis.

In the first half of 2022, Altares recorded 34,200 business failures over one year. In 2019, over the same period, a further 20,000 businesses were forced to close.

Although the number of business failures remains low, it has been rising steadily since February, with an average monthly increase of 45%. According to Banque de France figures, over the last 12 months, business failures have risen by 14.6% compared with the same period in 2021.

Towards conversion of state-guaranteed loans into capital

The rise in the number of insolvencies will particularly affect small businesses, with an increase of 25.7% between July 2021 and June 2022, and very small businesses, with an increase of 33.5% over the same period.

For mid-sized and large companies, on the other hand, the trend is downwards, with the number of insolvencies down 47.5% year-on-year.

Certain sectors have been hardest hit, such as trade and automotive repair (+18.5%), industry (+23.4%) and transport/warehousing (+27.9%). Catering and personal services are also taking a heavy toll from the health crisis.

By 2022, however, insolvencies should remain below Covid's pre-crisis levels. 52,000 insolvencies were recorded in 2019, 28,400 in 2021, and Altares estimates a total of 37,000 in 2022.

For its part, the French government has decided to extend until December 31 the "Mission d'accompagnement des entreprises en difficulté", a scheme overseen by the Ministry of Justice and the Ministry of the Economy and Finance.

The State is also preparing, in certain extreme cases, to become an indirect shareholder in the companies most weakened by the health crisis, by authorizing banks to convert State-guaranteed loans into capital when they cannot be repaid.

However, this option should not be offered to all companies in difficulty: for the smallest of them, debt forgiveness will probably remain the preferred solution, as managing the securities would be too costly for public finances.