Business insolvencies in France: review of 2023 and outlook for 2024

As emphasized in this study published by BPCE L’Observatoire, the overall trend in business failures covers a disparate variety of situations and, above all, raises a number of red flags for the coming year.

A tense economic environment for business organizations in 2023

The year 2023 was a major economic turning point for business organizations with inflation, higher interest rates, an economic slowdown (but no recession) and the repayment of Covid debt (State-guaranteed loans, social and fiscal debt) being some of the subjects preoccupying business leaders in 2023:

• Economic growth was undeniably limited in 2023 (around +0.8% after +2.5% in 2022) but it turned out much better than expected, and the economy is still continuing to create jobs,
• Inflation, which began with energy prices, spread to the rest of the economy through ‘second-round effects’ and triggered negative effects for the majority of companies (erosion of margins – notably in the service sector – and constraints on household consumption, especially in the food sector),
• In response to this inflationary shock, interest rates experienced a rapid, and brutal, rise leading to higher financing costs not only for businesses but also for households, notably depressing their investment in housing and durable goods,
• Lastly, the need to repay State-guaranteed loans continued in 2023, and the Urssaf social protection collection body increased its drive to send formal requests for outstanding debt payments in certain regions of France, especially since September 2023.

56,601 business failures in 2023: a return to normal without a backlog resolution effect?

In view of this operating environment, it’s not surprising that business failures rose sharply in 2023 in the wake of what was a highly atypical period. Indeed, the economic and legal arsenal implemented during the Covid crisis – the ‘whatever it takes’ policy – prevented a wave of insolvencies (up to -40% despite the recession in 2020), thereby blurring, until now, the economic signal represented by bankruptcies.
BPCE L’Observatoire counted 56,601 business failures* in France in 2023, 8% more than in 2019. Is this spike in insolvencies in 2023 just a return to normal (i.e., a return to pre-Covid levels) or is it the resolution of a backlog of companies that would have gone bankrupt without the protection of the ‘whatever it takes? To answer these questions, let’s take a look at the situation of insolvent companies in 2023.

Red flags: a backlog resolution process underway for SMEs and ISEs

While this ‘back to normal’ trend may seem favorable at first glance, it masks a number of red flags, according to Alain Tourdjman, Director of Economic Research at BPCE, and Julien Laugier, Economist at BPCE:

1 – Overall, the situation deteriorated markedly over the course of 2023. Indeed, while the total number of insolvencies in Q1 2023 remained at a historically low level (14,673 events), this number rose more rapidly over the course of the year to reach 16,272 in Q4 (provisional data), its highest point for a 4th quarter since 2013.

2 –  By type of insolvency: judicial liquidations (the most extreme case of business failure) were much more frequent in 2023 (73% of insolvencies versus 71% historically), reflecting a more severe type of company mortality. The return of judicial liquidation proceedings to their 2019 level appeared as early as the 1st quarter of 2023, whereas receivership proceedings reached that level later in the year (4th quarter of 2023). This reflects a situation in which the health of a growing proportion of businesses had deteriorated beyond the point of no return to the effect that their liquidation became inevitable, despite the effectiveness of early detection campaigns focused on company difficulties run by the public authorities and commercial courts, as demonstrated by the increase in preventive and safeguard procedures.

3 – By company size: the number of insolvencies of the larger entities increased more sharply in 2023. Three different situations can be observed depending on the number of employees working for the company:

• Micro-businesses and the smallest VSEs (with no employees, or employing 1 or 2 employees) tended to see their insolvency rate return to normal in 2023 (+2% vs. 2019).
• VSEs with 3 to 9 employees, with a 22% increase in insolvencies vs. 2019, reflect an early resolution of the backlog of insolvencies previously avoided between 2020 and 2022.
• More than 4,700 SMEs and intermediate-sized enterprises (10 or more employees) went bankrupt in 2023, up 37% vs. 2019, representing a total of approximately 1,300 entities. This increase corresponds to the resolution of about half the backlog of insolvencies avoided between 2020 and 2022 (compared with the 2019 baseline). 

4 –  Impact in terms of jobs: the business failure frequency rate of the largest entities (large VSEs and SMEs/ISEs) tended to increase over 2023 as a whole. According to Alain Tourdjman and Julien Laugier, the economic impact of business failures in 2023 is therefore far greater than in 2019 in terms of employment, with 240,000 jobs at risk in 2023 (up 25% vs. 2019) but also in terms of value, receivables, capital, and B2B interactions.

5 – By region: some areas prove to be extremely vulnerable, while others are less affected. The Midi-Pyrénées region in southwest France noted a significant increase in business failures (+27% insolvencies vs. 2019). In the SME/ISE segment alone, insolvencies in dynamic regions such as Aquitaine and Poitou-Charentes reached record levels in 2023 (+70% vs. 2019). Conversely, the least affected territories appear to be those that are less dynamic economically speaking (Lorraine, Basse-Normandie, Bourgogne, Limousin). Other factors may also explain these territorial differences, such as the degree to which Urssaf debt collections have returned to more normal levels, as well as specializations spefic to certain sectors.

6 – By sector: with a few rare exceptions, the sectors affected were exposed to changes in the business environment that occurred in 2023 (inflation, higher interest rates, changes in household consumption patterns). In particular, household behavior is the primary factor affecting food retailing, food processing, and personal services (beauty and body care, hairdressing, etc.), catering and road haulage activities.

62,000 insolvencies anticipated in 2024 

According to Alain Tourdjman, the number of business failures is set to rise again in 2024, reaching a total of 62,000 (up 10% vs. 2023). This central scenario is naturally subject to a number of positive and negative imponderables, such as trends in business activities, the situation regarding interest rates and inflation, and the degree of resilience of companies to Covid debt repayments.
The typology of business failures in 2024 is likely to change as a result of the following factors: 

• Changes in business drivers. The situation in the retail, agri-food and personal services sectors should improve while bankruptcies in construction, catering and business services should increase in 2024. The situation in the manufacturing sector (excluding agri-food) is more uncertain in 2024,
• The extent of backlog resolution already started in 2023. Indeed, insolvencies are likely to increase among the smallest entities, which will only begin to resolve their backlog of insolvencies in 2024, while their number is expected to stabilize among SMEs and ISEs. As a result, the number of jobs threatened by the 62,000 business failures anticipated in 2024 should not greatly exceed the already very high level noted in 2023 (around 250,000 jobs threatened in 2024). 

*Using data obtained and processed by our economists, BPCE L’Observatoire is now in a position to provide a highly detailed statistical and economic analysis of business failures.