By Volker Böhm, Attorney-at-Law in Germany and Certified Specialist in Insolvency Law
Against all the odds, the German economy picked up again in 2021 after the lockdown year of 2020. In Q2 2021, gross domestic product was almost 10% higher than during the same period the previous year. However, in late summer 2021, a renewed setback was evident in the ifo Institut’s Business Climate Index. In September 2021, this barometer of German business sentiment fell for the third time in a row. As the cause, the ifo Institut pointed in particular to the supply shortages affecting raw materials and primary products, as are very markedly in evidence in the semiconductor sector, and even talked of a “bottleneck recession”.
Insolvency numbers fell once again in 2020. Just over 11,000 (11,063) new insolvency proceedings were commenced, 18.23% fewer than in the previous year (2019: 13,530) This is by far the biggest fall of the last ten years; previous declines were all in the single digit percentage range. This trend towards double-digit falls continued into the first six months of 2021, when the number of new proceedings fell by 14.08% compared with the first six months of 2020, despite the fact that the suspension of the obligation to apply for commencement of insolvency proceedings for undertakings affected by the COVID-19 pandemic ended on 30 April 2020.
In summer 2021, flooding and heavy rain caused enormous financial losses in some parts of Germany. Just a few months after the suspension of the obligation to apply for commencement of insolvency proceedings for companies affected by COVID-19 expired, the obligation was suspended once again, this time for companies affected by the floods. And once again, the state distributed billions of euros in aid for the damage caused. As a result, there was no rise in insolvencies due to these events.
Nationally, the percentage of applications resulting in actual proceedings (the “commencement rate”) was 69.84% in 2020, significantly lower than the previous year’s figure (2019: 72.36%). In contrast, the total value of creditor claims involved in insolvency proceedings rose significantly: In 2020, the average value of claims at risk per insolvency proceedings was EUR 2.770 million, compared with just EUR 1.199 million in 2019. This figure remained comparatively high, at EUR 2.607 million, in the first six months of 2021. The total value of claims filed nearly doubled in 2020 compared with 2019, rising from EUR 22,416,472.00 in 2019 to EUR 43,873,554.00 in 2020. So the trend towards fewer insolvency proceedings involving higher creditor claims is continuing.
Moving in the opposite direction to the total number of insolvencies, the number of self-administration proceedings has risen sharply. There were 266 such proceedings across Germany as a whole in 2020, a 22.58% rise on the previous year (2019: 217). There was a particularly steep increase in the number of proceedings involving use of the protective shield procedure, from 16 in 2019 to 58 in 2020. As a result, the proportion of proceedings involving self-administration and the protective shield procedure rose considerably in 2020. This figure now stands at 2.4%, significantly higher than the 1.6% figure reported in 2019. The proportion of larger proceedings involving self-administration is likely to be substantial.
There have been only a few changes in the regional distribution of cases across the various insolvency courts. As is the case every year, the insolvency court in Berlin handled the largest number of proceedings by a significant margin. Cologne and Munich swapped their 2019 places to come in second and third. Frankfurt rose from eleventh to fifth place, while Nuremberg fell from tenth to fifteenth place. The Bonn insolvency court fell out of the top 20 in 2020 and was replaced by the court in Hannover, which handled just over a fifth of the number of cases brought before the court in Berlin. All in all, 11% of German insolvency courts look after 40% of proceedings commenced.
The final chart, showing the ten most frequently appointed firms of administrators, has changed only slightly since 2019. The top four firms are unchanged, while the firms in fifth, sixth and seventh places have moved around. The proportion of all corporate insolvency proceedings commenced in Germany handled by one of the top 10 firms has risen only slightly to stand at 24.03%, almost a quarter of total corporate insolvencies. This figure is approximately the same as last year.
The essay is available for download here.