Despite the massive shock triggered by the coronavirus pandemic and what were, at times, very stringent containment measures, the number of corporate insolvencies dropped substantially in 2020, the Bundesbank writes in its Monthly Report. This was due in part to the temporary suspension of the obligation to file for insolvency, which is subject to certain conditions. Additionally, various government support measures were introduced during the crisis to stabilise enterprises’ financing situations. Thus, the Bank’s economists note, the insolvency figures since the onset of the coronavirus crisis partly reflect the influence of government financial support measures, which eased the pressure on firms to file for insolvency.

Importance of temporary legislative changes

The temporary suspension of the obligation to file for insolvency in particular will have been a factor in the number of insolvencies filed. This change in the law meant that enterprises which had encountered difficulties due to the coronavirus pandemic were not required to file for insolvency if they became insolvent or overindebted during a specific period in 2020. While the suspension of the filing obligation sent insolvency numbers sharply lower, there was also an exceptionally sharp drop in the figure for 2020 as a whole (15,800), which was nearly 16% down on the previous year’s figure.

Figures differ significantly across sectors

Some services sectors in particular saw a reduction in insolvency filings as well despite a sharp drop in sales, the Bundesbank’s experts write. The risk that firms are suppressing insolvencies will probably be particularly high in these cases. Some of these sectors normally account for a considerable share of insolvencies in Germany, numerically speaking. The production sector, by contrast, showed relatively moderate decreases.

Considerable drops in sales in some sectors

As a result of the shock, German enterprises’ sales shrank on average by less than half as much as they did during the financial and economic crisis in 2009, the Bundesbank writes in its Monthly Report. Some sectors fared noticeably better than others, however. Export-driven sectors like carmakers and mechanical engineering, and industries hit hard by travel constraints and physical and social distancing requirements, such as aviation and accommodation and food service activities, registered very heavy drops in sales. Construction and some parts of the retail trade, on the other hand, saw their sales figures skyrocket.

Enterprises’ liquidity positions under pressure

The coronavirus shock meant that enterprises found it quite a challenge to preserve their liquidity in 2020. Pandemic containment measures or social and physical distancing requirements led to business operations or production in some just-in-time sectors being cut back considerably or grinding to a halt altogether. To boost liquidity, fiscal policymakers rolled out extensive financial assistance packages for months in which sales were down. Enterprises themselves took comprehensive action as well to shield their liquidity. All these measures drove enterprises’ liquidity levels significantly higher, but they also pushed up their long-term debt, according to the experts. On balance, enterprises did a relatively good job of absorbing the shock from the coronavirus pandemic.