The various government support measures have prevented many bankruptcies in 2020. For a large number of companies, it is unfortunately only a matter of time. Euler Hermes forecasts a sharp insolvency increase as from the second half of 2021.

Paradoxically, the current crisis – one of the worst since World War II – has caused a sharp decrease in the number of insolvencies. However, many companies face significant losses and will have to fight to survive until the coronavirus crisis is over. In countries like Germany, France, the United Kingdom, Italy and the Netherlands, the number of insolvencies in 2020 decreased by 13% or even 50% compared to the previous year. Belgium has also experienced a sharp decrease in the number of bankruptcies. Last year, nearly 8,000 businesses went bankrupt in our country, compared to over 10,000 companies in 2019.

Why such a decrease? Almost all governments of developed economies have taken important measures to give businesses more time and flexibility to recover from the economic impact of the Covid-19 crisis. The Belgian authorities have also put in place many support measures, including a moratorium on bankruptcy. In addition, many measures were extended when the virus worsened in the second half of 2020.

Ed Goos, Euler Hermes Benelux CEO:

Out of cash flow

Because of all these support measures, there is a big gap between the economic reality and the insolvency situation. "The successive confinements weigh heavily on many companies," said Maxime Lemerle, Head of Sector Research at Euler Hermes. "Almost one in five companies in Belgium is directly confronted with the restrictions." Without additional support or debt, cash flow of these companies will be completely exhausted. Euler Hermes estimates that 24% of companies in the Eurozone risk a cash flow crisis in 2021.

An increase of bankruptcies

Governments cannot artificially keep all businesses afloat. “We expect an increase in insolvencies as from the second half of the year. On one hand, we will be faced with bankruptcies of companies which were already no longer viable before the crisis and which were temporarily using the support measures. On the other hand, many companies will no longer be able to repay their debts due to the crisis,” says Maxime Lemerle. Euler Hermes expects a record insolvency number in Belgium this year and next year.

The sectors most affected by the coronavirus crisis represent over 125,000 companies and nearly 423,000 employees in Belgium. Initially, this mainly concerned hotels, restaurants and other businesses in the leisure sector. The automotive and service industry sub-sectors have also proved to be very sensitive to the crisis. “However, the greatest number of at-risk workers are found in non-essential products retail,” says Maxime Lemerle.

Zombie companies

Many companies already had a rough time before Covid-19. Many of them should have gone bankrupt a long time ago under normal circumstances, but were able to delay this issue thanks to the support measures. We call them "zombie companies". Euler Hermes estimates that around 13,000 SMEs in the Eurozone were already highly exposed to bankruptcy before the outbreak of the coronavirus crisis (based on the evolution of their profits, capitalization and interest coverage). In Belgium, this represents 8% of all SMEs.

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