The first rise since the previous crisis: the number of bankruptcies grew by 26% in a year

Creditinfo’s bankruptcy survey revealed that the amount of bankruptcies grew last year for the first time in ten years and increased 26 per cent compared to 2019.

Last time the number of bankruptcies grew significantly due to the global economic crisis in 2008 and 2009 when the growth measured up to even 150 per cent in annual comparison. There was marginal growth (+2.4%) also in 2017, but this was only a shift by eight companies. In 2020, the number of bankrupt companies increased from previous year’s 271 to 341, that is by 26%. The share of companies that have gone bankrupt of all companies is still only 0.15 per cent of all registered companies.

Figure 1. The number of bankrupt companies, 2007–2020

Figure 1. The number of bankrupt companies, 2007–2020

“The amount of bankruptcies remained at a low level in 2020, but there was still a trend of significant growth in the number of bankruptcies that we have not seen since the beginning of the previous great economic crisis. It may be assumed that this was partly due to the effects of the corona crisis, but since the bankruptcy process is long-term, we will probably see the greater effect here next year,“ explained Creditinfo Estonia’s analyst Helen Tinkus.

There was also a turn to growth in the last decade’s continuous downtrend of the number of assetless companies, in these cases the bankruptcy was dropped due to the absence of assets. While during 2010-2019 the number of dropped bankruptcies decreased on the average by 14% in a year, in 2020 the number of assetless companies increased by a whole 49%.

“This may be caused by the fact that in the economic environment that had become insecure because of the corona crisis, there were more business plans that failed completely and the company was unable to gather any assets at all before the insolvency situation developed. At the same time, there are also some among the assetless companies that showed substantial turnover numbers in the years prior to the bankruptcy,“ Tinkus added.

There were no major changes in the fields of activity during the recent years. The areas with the highest rate of bankruptcy were still accommodation and catering, manufacturing industry and construction. The rate of bankruptcy was above the average also in wholesale and retail.

“There have been no changes in the fields of activity with the highest bankruptcy rate in the recent years. But the share of bankrupt companies in the accommodation and catering sector grew faster than in others, both compared to other fields of activity and to previous periods. This is the field that was influenced the most by the corona crisis and the restrictions. Based on the payment defaults and wage compensations statistics, we can predict a greater effect of the crisis on the companies operating in the field also in the coming years,“ Tinkus stated.

Creditinfo Estonia Ltd has conducted bankruptcy surveys about Estonian companies since 2000. During the 20 years the number of bankruptcies has both increased and decreased in waves, reaching the peak level in 2009 as a result of the global economic crisis. In 2011 the number of bankruptcies fell by a remarkable 40%, in 2012 by 20%. Bankruptcies have decreased steadily also in the following years, reaching the pre-crisis low level in 2015.

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