The number of companies that resort to bankruptcy will grow this year by 20% compared to 2021, according to the forecasts released this Monday by the General Council of Economists (CGE) in the presentation of the report Insolvency Atlas 2022. With the latest official data available, up to the third quarter of 2022 the number of companies that entered the competition amounted to 3,618, compared to 3,169 firms in the same period last year (14% more). The figure also exceeds the figure that was registered between January and September 2019, of 3,383 contests.
It has been the self-employed and micro-SMEs —those companies that have less than 10 employees and do not invoice more than 700,000 euros— who have resorted the most to this judicial tool. Specifically, 73% of the contests in 2021 corresponded to self-employed workers and micro-SMEs. Last year the smallest companies had accounted for 40% of the processes and the self-employed, 33%. Insolvencies among the self-employed grow by 61% compared to the same period last year and go from 1,446 in 2021 to 2,330 in the third quarter of 2022. In the case of individuals, bankruptcies grow by 23 % in 2021 compared to 2020 and go from 4,032 to 4,975.
The growth in the number of bankruptcy proceedings is conditioned, as clarified by the president of the General Council of Economists, Valentín Pich, by the effects of the Covid and the measures that were taken to tackle the crisis. In addition, he has highlighted that the bankruptcy moratorium —which consisted of offering a temporary waiver to insolvent companies that were on the verge of bankruptcy— contained the increase in these processes until June 30, the expiration date. After the end of said moratorium, a bankruptcy increase of 30% was observed after the summer. Other elements that affected the viability of the companies were inflation, the price of energy and the delay of the Spanish economy in reaching pre-pandemic levels. According to the document, “the health of companies could have been greatly strengthened if growth expectations had been met.”
Although the number of companies using this procedure is increasing, according to Alejandro Latorre, a member of the Board of Directors of the Registry of Forensic Economists (Refor), this is not necessarily bad. “The use of the contest is one more management tool and its increase should not necessarily be a cause for alarm,” he pointed out. According to the report prepared by Refor, the number of company bankruptcies in Spain is lower than that of other neighboring economies: it stood at around 6,000 in 2021, when in France it exceeded 28,000; in Germany, 14,000, and in Italy, 8,000. Something that, according to Latorre, “is below the numbers that would correspond to an economy like ours.”
In Spain, this procedure is not always used. The report confirms that payments from Fogasa — the Salary Guarantee Fund that guarantees payments to workers in the event of bankruptcy proceedings — have increased by 14.31% from January to December 2021, but bankruptcy proceedings have not increased in the same measure. In other words, there are more Fogasa payments, which come from insolvencies, than bankruptcies, which the General Council of Economists considers to be due to the fact that many companies are not resorting to this mechanism and opt directly for closure.
The reform of the Bankruptcy Law, which has been in force since September 26, has tried to promote mechanisms that preserve the business fabric and prevent the declaration of insolvency from ending in liquidation. In addition, it contemplates special processes for those greatly affected, the self-employed and micro-SMEs, which will be eligible for restructuring plans as of January 2023. This, together with a macroeconomic scenario that is not as unfavorable as might be expected, suggests a rate of increase of company bankruptcies by 2023 of 11%, much lower than the current 20%.
Javier Santacruz, professor of Economics and macro-financial analyst, stated that a large increase in the number of business bankruptcies is not expected because “both the economic evolution itself and the change in rules that have occurred in recent years contribute to the fact that companies have more extensive coping mechanisms at their disposal.
For Santacruz the economic framework is not unfavorable. On the supply side, no serious capital destruction is expected in the coming quarters, according to the OECD Composite Leading Indicator. On the demand side, the depletion of the family savings cushion after the pandemic will have a considerable impact and will curb consumption, with the consequent cooling of the economy and a foreseeable drop in inflation. Regarding the recession, Santacruz has stated that “it probably won’t be as intense or as long as previous ones have been.”
By communities, they are Catalonia, with 2,446, and Madrid, with 1,252, the ones that processed the most bankruptcy proceedings in 2021, although they are also the ones with the largest number of companies. In the rest of the communities they also increase, with the exception of La Rioja, which remains at similar figures. In all Spanish companies, if figures for 2021 are taken, only 0.21% resort to this procedure —approximately one in 476— which for the Council of Economists is a “very low” percentage that shows the “ strength” of the business fabric.
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