The upward trend in insolvency numbers remains unbroken, although the momentum decreased slightly in May. Early indicators collected by the Leibniz Institute for Economic Research Halle (IWH) suggest a decline in numbers for the coming months, but credit rating agency Crif anticipates a higher default rate compared to recent figures. The payment discipline of German companies, a crucial indicator for potential defaults and a precursor to insolvencies, has notably deteriorated in the first five months of this year.

According to the Federal Statistical Office (Destatis), the number of applications for normal business insolvencies rose by 25.9% in May compared to the same month last year. In April, the increase was 28.5%, following a 12.3% figure in March. Consequently, „double-digit year-on-year growth rates have been consistently observed since June 2023,“ the Wiesbaden based statisticians note. However, the IWH Insolvency Trend indicated a decline in insolvencies for individuals and corporations in May, marking the first decrease since November 2023.

Since regular procedures are included in the statistics only after the first decision of the insolvency court, with the actual filing date often about three months earlier, Destatis provides final figures for the first quarter. Accordingly, the district courts reported 5,209 applications for corporate insolvencies, marking a 26.5% increase compared to the corresponding quarter of the previous year. This exceeds by 11.2% the level from the beginning of 2020, the equivalent comparative quarter before the period of special regulations and low insolvency numbers during the Covid crisis. Consumer insolvencies rose by 4.8% year-on-year to 17,478 in the three months up to March.

The recent development in insolvency numbers reflects only one aspect of the current economic situation, cautions the Registered Association of Insolvency Administrators (VID). „We continue to see many silent business closures outside of insolvency“, said VID chairman Christoph Niering. Manyof these business closures are primarily due to demographic reasons.

„Given the ten month observation of double-digit percentage growth rates, it is increasingly difficult to talk of a non-existent wave of insolvencies", comments Frank Schlein, managing director of Crif Germany. The conditions remain challenging for companies, with no strong economic momentum in sight. "Moreover, private consumption shows only a slight improvement, and geopolitical risks persist“, notes Schlein.

Crif expects 20,500 corporate insolvencies for the full year. The forecast in early March was 19,800. This represents an increase of nearly 15% compared to 2023. Thus, pre-pandemic levels are being exceeded. In 2017, there were 20,276 corporate insolvencies, followed by 19,552 in 2018 and finally 19,005 in 2019. However, as Crif acknowledges, in 2003 and 2010, there were „in some cases significantly more company bankruptcies than at present, with 2,000 insolvencies per month.“

Currently, „companies are increasingly adopting liquidity-preserving behaviour,“ explains Schlein. On average, companies grant their creditors a payment term of 26 days. For non-payers or late payers, invoices are currently settled after an average of 52 days, twice as late.

Liquidity shortfalls arising from delayed or unpaid invoices are considered one of the most common causes of insolvencies. An examination of the payment behavior of nearly 540,000 companies, according to Crif, has shown that overdue invoices were paid with an average delay of approximately 26.9 days in the first five months of 2024, compared to 19.2 days during the same period in 2023. Creditors' claims have also risen, with district courts estimating them at around 11.3 billion euros for cases reported in the first quarter. Last year, the figure was around 6.7 billion euros.

The transportation and storage sector was again most affected by insolvencies, with 29.6 cases per 10,000 companies. This was followed by construction with 23.5 cases per 10,000, other economic services – including temporary employment agencies – with 23.0 cases, and manufacturing with 20.3 insolvencies. Overall, there were 15.2 bankruptcies per 10,000 companies in the first quarter. „The pressure has not eased in the particularly affected sectors", comments Niering at the VID. "As the insolvency of FTI Touristik shows, even industries experiencing rising demand are not immune to existential crises.“ The real estate sector also continues to struggle with high interest rates and increased construction costs.

Persistent pressure on bricks-and-mortar retail, and the ongoing trend toward remote work, also do not suggest a rapid recovery in demand for commercial real estate projects. „This continues to pose existential challenges for many companies,“ Niering adds.

Regarding federal states, Crif reports an average of 17 bankruptcies per 10,000 companies for the first quarter. Berlin leads with 28 cases per 10,000 companies, followed by Hamburg (22) and North Rhine-Westphalia and Saarland (each 21). Bavaria, Brandenburg, and Thuringia reported the fewest corporate insolvencies, each with 12 cases per 10,000 companies.

In absolute numbers, North Rhine-Westphalia (1,311), Bavaria (717), and Baden-Württemberg (624) had the highest number of corporate insolvencies. Compared year-on-year, the number of cases increased in 15 federal states, most significantly in Mecklenburg-Western Pomerania (83.7%), Brandenburg (50.7%), Saxony (39.2%), and Rhineland-Palatinate (37%). In contrast, Saarland reported a decrease of 4.9%.