The rise in the number of business failures, expected after the end of the “whatever it takes” period, is showing no signs of abating, and is even increasing for certain types of company. But the number of insolvencies in the strict sense of the term should not obscure a more in-depth analysis of the phenomenon, which highlights pockets of vulnerability in the business fabric.
A surge in insolvencies that is more worrying than it seems
BPCE L'Observatoire counted 13,570 business failures in Q1-2023. The number of bankruptcies is now very close to its 2019 level, but not higher. Companies are not facing the sometimes-feared ‘wave of bankruptcies,’ even if several phenomena, already identified since Q2-2022, are gaining momentum and should be setting even more alarm bells ringing:
- The increase in the number of compulsory liquidations points to a deterioration in the situation of companies in difficulty,
- SMEs and mid-sized companies are the most affected, in particular those with between 10 and 100 employees. Smaller companies seem to be more resilient, while SMEs are facing a significant increase in insolvencies,
- The most affected sectors are not necessarily those directly touched by the health crisis. IT services, agriculture, road transport and agri-food are heavily affected, while the health and education sectors are left relatively unscathed. (See the full sectoral analysis and territorial disparities in the published research).
Heading towards a difficult year in 2023 on the insolvency front... at the very least more difficult than 2019
For the past year, the economic environment has been both inflationary and the source of little growth (at the aggregate level), which has weakened the cash position of many businesses. This environment naturally increases the weight of the Covid debt. What is more, access to credit is tightening up, notably for very small companies, and the repayment of the so-called “Covid debt” (particularly the state-guaranteed loans) is siphoning off available cash. Another concern is energy prices. After several months of sharp increases, energy prices fell back in late 2022-early 2023 to less “alarming” levels, although still higher than in 2019.
In 2023, and probably in 2024 as well, the fact that the URSSAF bodies responsible for collecting employee and employer social security contributions will be taking punitive measures against companies (more frequently small ones) weakened by the Covid crisis, combined with the energy shock and the economic slowdown, will add to the ‘natural’ number of insolvencies, certainly leading to a higher level of default than in 2019..