ANDA wave of bankruptcies is sweeping Germany – or at least that’s how it feels. Because the number of cases increases continuously and, above all, by leaps and bounds. In October, the Federal Statistical Office reported 22.4% more company insolvencies than in the same month last year. According to official data, in the previous five months the increase rates were also in the double-digit percentage range, starting at 14 percent and ending at 35.7 percent.
The negative impression is reinforced by prominent names appearing repeatedly in bankruptcy reports, be it supermarket chain Real and shoe retailer Reno. But toymaker Haba, fashion house Peek & Cloppenburg, sports specialists such as Tennis-Point and Fahrrad.de and mason jar maker Weck have also been hit by bankruptcies.
The situation is indeed very tense in selected sectors, especially in the health sector, such as nursing services and hospitals, as well as in the construction industry. Overall, the professional association of insolvency administrators and trustees in Germany (VID) does not want to hear anything about a wave of insolvencies.
“The numbers are rising again and it looks dramatic,” he says. The German economy also still faces many challenges due to the corona pandemic and the impact of inflation and the war in Ukraine.
“A wave of insolvencies cannot be proven based on concrete numbers”, says VID President Christoph Niering. In a long-term comparison, even the current significant increase only means a normalization of insolvency events.
In fact, the numbers are still far below the values from the 2000s and 2010s, when there were sometimes twice as many bankruptcies as before. This is also due to the fact that, in recent years of crisis, many companies have been saved from insolvency with massive government aid and the obligation to declare insolvency has sometimes been suspended.
Previously exposed bankruptcies
This led to the paradoxical situation where, in one of the biggest crises in the German economy, new lows were regularly reached in insolvency statistics. The starting point is correspondingly low – and the rates of increase are correspondingly high.
However, individual sectors are sometimes under enormous pressure. According to VID, this affects, on the one hand, the construction and real estate sector, which is in a difficult situation due to the sharp rise in construction prices and the increase in interest rates.
“After the construction boom of the last decade, a turmoil in the market began here, which particularly affects companies that launched more expensive projects with a very high proportion of borrowed capital”, explains the head of the association, Niering. In addition to project promoters and real estate developers, artisanal companies will also face problems soon.
On the other hand, there are increasing disruptions in the healthcare system. Hardly a week goes by without hospital operators, social centers or nursing services declaring bankruptcy.
A recent survey by Diakonie Deutschland shows how critical the situation is for the latter. According to this, 72.7 percent of the 526 outpatient care services surveyed rated their economic situation as tense. In about a third of credit lines, the liquidity reserve only lasts three months or less.
According to Diakonie, the reasons include, for example, delays in payments or significantly increased costs in relation to the remuneration paid, for example because tariff increases are not immediately taken into account. According to the research, 54 percent of nursing services have already recorded losses in 2022 and 62 percent expect a negative result in 2023.
Emergency situation in hospitals and nursing services
The tense situation could quickly become a major problem for society. After all, 84% of the approximately 4.9 million people in need of care in Germany are cared for at home. And outpatient care services play a central role in this. “The survey is an alarm signal”, says Maria Loheide, social director at Diakonie.
“Home care for people in need of care is at serious risk.” And not just because of financial problems. At the same time, there is also a huge shortage of skilled workers in the industry.
But there is also an emergency in hospitals. Since November 2022, 26 providers with a total of 34 clinics have filed for bankruptcy, the German Hospital Association (DKG) announced in October.
And further bankruptcies could only be avoided because local municipalities stepped in as saviors. Insolvency does not necessarily mean closure.
But, according to a survey carried out by management consultancy Roland Berger, among the 600 largest German clinics, more than half are currently recording losses. The federal government is now trying to stabilize the sector with hospital reform.
The situation of the health system is dramatic
However, Niering, head of VID, does not expect the situation to improve in the short term: “Even with rapid legal implementation, the first measures announced for 2024/2025 will arrive too late for many hospitals.”
In the coming months, Niering not only expects a new increase in insolvency cases in the healthcare sector. However, the Cologne insolvency administrator no longer believes in new record levels, with almost 40,000 bankruptcies every year, as in 2003 and 2004.
“We won’t see this again in the future,” says Niering, explaining this with “structural reasons.” An often overlooked factor is the decline in the number of start-ups in Germany over the years.
“It is precisely in the first five years after their foundation that companies are at greatest risk of insolvency. Fewer start-ups have a direct impact on the number of insolvencies.”
Niering believes that there are fewer new companies being founded, as a warning sign for local economic policy. “The corporate scenario has not been renewed sufficiently for a long time. But if not enough new companies emerge, the potential for innovation diminishes.” That’s why it’s important to create a more founder-friendly environment.