New data from Euler Hermes insurers confirms predictions that 2021 is likely to bring a flood of corporate insolvencies throughout the world’s largest economies.
Half of the countries listed will record a new high since the 2009 financial crisis.
Insolvencies in the US will rise 57% on 2019, reflecting the largest rise.
Overall, the UK will be the 6th worst hit amongst the major economies.
Which Sectors Will be Worst Hit?
The report points out that the worst hit sectors will those already experiencing fragility before the onset of COVID-19.
- non-essential retail
- hotels and restaurants
This is contrasted with sectors demonstrating resilience which include, for obvious enough reasons:
Emerging from lockdown is going to represent the most critical time, the report points out, since the sudden increase in working capital requirement could push companies over the tipping point.
Why Haven’t We Seen Mass Insolvencies Before this Point?
Until now, the key measures that have staved off a flood of liquidations are as follows;
- Court Delays because of Lockdown Restrictions – Most countries legal systems are currently experiencing huge backlogs, which means current statistics haven’t yet caught up
- Government interventions such as the UK Bounce Back Loan Scheme.
- Changes in national insolvency regimes, such as the moratorium on statutory demands and winding-up petitions in the UK.
Euler Hermes points out that Q4 in Europe is likely to be the time when the surge in business insolvencies reaches its zenith.
Insolvencies of Larger Companies Could Precipitate a Domino Effect
Smaller companies should beware the ripple effect from the large corporate insolvencies, the study warns.
“When major companies fall the entire supply chain feels the domino affect’ comments insolvency practitioner Simon Renshaw. “Clients may find themselves unable to source critical components for their own business, and be forced to find immediate alternatives, often with cost implications.