Fewer Insolvencies Than Expected in 2020

However, the sole reason for this rise was the insolvency of Wirecard AG, which accounted for just under EUR 13 billion. In other words, the increase was not an immediate consequence of the Covid-19 pandemic and the fall in business activity accompanying it. The obligation to apply for insolvency was suspended on March 1, 2020, and the synopsis concluded that this prevented a rise in the number of insolvencies. It added that the impact of government support packages on insolvencies was not reflected in the forecasts, as the latter were based on historical relationships that could not take into consideration the scope and design of those packages.

The expert synopsis reported that the government support packages had reduced the risk of insolvency by just under 25 percent on average. Government grants to companies had the most significant effect. More than EUR 40 billion was paid out in 2020 as part of the Covid-19 support program. This immediately mitigated the collapse in company profits. As a result of the short-time work allowance and a substantial decrease in the number of people in minimal employment, companies also had lower personnel expenses. Finally, tax-related liquidity assistance measures reduced the insolvency risk.

“On the basis of our model forecast, we cannot say for certain to what extent the insolvency risk accumulated over the past year will result in actual insolvencies at a later date,” Wollmershäuser says. When the obligation to apply for insolvency came back into force in early 2021, insolvencies increased appreciably. Up to August 2021 alone, the likely claims from applications for insolvency proceedings come to EUR 47 billion. It was therefore to be expected that there will be a significant year-over-year increase in 2021.