EU bankruptcy filings surge to 8-year high as pandemic aid ends

The number of EU companies filing for bankruptcy rose to its highest level in at least eight years in the fourth quarter, suggesting that more of the struggling ‘zombie’ firms that have been kept afloat by government aid during the pandemic are begin to collapse.

Eurostat, the statistical office of the EU, called On Friday, business bankruptcy filings in the region rose nearly 27 percent compared to the previous quarter of 2022, hitting the highest level since the agency began collecting data in 2015.

Economists said the delay, which follows two years of falling bankruptcies across Europe, reflects deteriorating conditions for many European companies due to slowing economic growth, rising energy prices, rising wages and higher financing costs.

“There are a lot of companies that got a free pass in 2020 and 2021 when they didn’t even have to pay some of their creditors, like social security contributions in France,” said Ludovic Subran, chief economist at German insurer Allianz, which predicts a rise in the number of cases this year western European bankruptcy filings by almost 20 percent.

“Those fallen angels or companies that are struggling to get by are now facing less support, with increased funding and labor costs, and it’s becoming totally unsustainable,” he said.

Bankruptcy filings rose particularly sharply in Spain, more than doubling in the second half of last year after changes to the country’s bankruptcy laws making it easier for companies to restructure their debt led to a surge in such filings.

In 2020, after governments across Europe introduced support measures for companies hit by the economic fallout of the pandemic, the number of bankruptcies fell sharply. This led to criticism that state aid and low interest rates would keep “zombie” companies afloat, which would otherwise collapse because their profits could not cover their interest costs.

As government support is withdrawn, more businesses collapse. Overall, bankruptcy filings in the EU rose by 35 percent between the first and second half of last year. While this resulted in a 16.5 percent annual increase over the past year, the 2019 total remained nearly 6 percent below pre-pandemic levels.

According to Eurostat, the largest increase in EU bankruptcies in the fourth quarter was in the transport and warehousing and in the accommodation and catering sectors, where they increased by 72 percent and 39 percent respectively compared to the previous quarter.

Bankruptcy filings in France surged nearly 16 percent in the second half of last year after the government ended many pandemic relief measures. However, in some large economies, such as Germany and Italy, the number of corporate insolvencies fell.

James Watson, chief economist at EU employers’ group BusinessEurope, said: “There is clearly a factor where governments are withdrawing the support introduced during the pandemic and it is having an impact.”

But he added: “There’s something else going on as it becomes an increasingly difficult trading environment for many companies due to high inflation, weak growth and rising interest rates.”

Spanish authorities hope the country’s new bankruptcy law, passed in September to implement an EU directive, will make it easier to sell parts of the company and end lengthy restructuring processes that are stuck in court by giving creditors more power.

One of the first major Spanish companies to test the new law is steelmaker Celsa, which has a financial restructuring plan undergoing court proceedings to reduce its €2.8 billion debt.