Corporate insolvencies rise in France: +34.6% in the first quarter

The turn signals turn red one by one. After a slowdown in the French economy expected in the first quarter, the horizon for French companies is darkening. Buoyed by emergency “at all costs”, many sectors were able to benefit from the hibernation of the commercial courts for many months.

With the gradual disconnection of all these crutches and the deterioration of the economy as a result of the war in Ukraine, most economists expect a rise in the number of bankruptcies. In this highly uncertain environment, fears of stagflation and fears of recession are on the rise. The consequences of the war in Ukraine could deal a huge blow to the global economy.” Oxford Economics economist Daniela Ordonez said in a recent press conference.

“No area spared”

In its latest report, unveiled on Monday, April 11, business data research firm Altares recorded: a 35% increase in bankruptcies between January and March compared to the first quarter of 2021. “In the first quarter of 2022, the noose of the health crisis loosened and aid stopped. A return to a form of normalcy that also includes a resumption of defaults. So the increase is starting and it is already very evident in sectors that depend from the resumption of consumption habits such as going to the restaurant or the hairdresser. No area is spared by the phenomenon”, emphasizes Thierry Millon, director of studies at Altares.

The outbreak of the war in Ukraine and its economic consequences for the old continent could accelerate the difficulties for many sectors. †At the beginning of 2022, confidence in the future gained ground: cash levels and well-filled order books indicated a recovery of the economy. However, since February 24 and the beginning of the Russian invasion of Ukraine, the horizon has darkened: rising energy prices, supply difficulties, shortages of materials, rising inflation packages … so many signals that prompt caution”, he adds. The expert does not foresee a wave of bankruptcies in the coming months either. With the second round of the presidential election, scheduled for April 24, approaching, this first-quarter recovery could overshadow outgoing President Emmanuel Macron’s results.

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An increase that is still below the pre-crisis level

The number of malfunctions has increased compared to the first quarter of 2021, from 7,406 to 9,972, an increase of 34%.6%. However, it remains well below the pre-Covid levels recorded in 2018 (14,698) and 2019 (14,146). It seems that young companies are most affected by this bankruptcy movement. Nearly half of the companies that filed for bankruptcy in the first quarter were founded less than five years ago.

Especially those who registered just before the start of the pandemic or during the health crisis (+52%). “The difficulties of young companies are especially pronounced in the activities of “multi-department stores” (mainly general food stores) where the defects are three times higher this quarter; but also in the catering (+180%), where the number of procedures is exceptionally was low a year ago”, point to the authors of the study.

SMEs on the edge

Given the size of the company, small and medium-sized enterprises (SMEs) with fewer than 50 employees face much more difficulties than larger ones. The number of bankruptcies has thus increased by 56% between January and March compared to the first quarter of 2021, thus exceeding pre-crisis levels. On the other hand, companies with more than 50 employees seem to be resisting this wave of bankruptcies.

Trade and restaurants hit hard

The other lesson of this study is that consumer-oriented activities are paramount. These are mainly trade, catering and services to private individuals. In general food (+83%) or the clothing trade (+34%), the increases are staggering.

For the catering industry, this increase is not really surprising given the long months of closure of all branches. Many restaurateurs had expressed fears when government support was cut. Added to this were the high number of redundancies and serious recruitment difficulties since the autumn of 2021.