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Germany Faces Wave of Insolvencies as Filings Waiver Ends

(Bloomberg) — Germany is bracing for a surge in insolvencies starting Thursday, when a moratorium to help companies survive the coronavirus outbreak comes to an end.

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From this month, businesses that can’t pay their bills will again be forced to seek court protection. Since March, that hasn’t been the case for those that could pin their lack of liquidity on the pandemic and show they stood a good chance of overcoming the crisis.

“Those that could be saved were rescued,” said Tillman Peeters, managing partner at Frankfurt-based financial advisory firm Falkensteg. “The numbers will inevitably rise” now that the safety net has been removed.

The help offered to ailing companies was part of a package of government measures designed to cushion them from a steep economic recession stemming from the virus. The ending of the moratorium will result in a “wave” of insolvencies and — because of a backlog of filings — levels will remain high until the third quarter of next year, Commerzbank AG said in a Sept. 25 report.

Companies with too much debt but enough cash to cover their short-term needs can still delay filing until the end of the year, giving them additional time to get their finances in order. About one in 10 struggling businesses are in this position, Commerzbank estimates.



chart, bar chart: Postponed Not Canceled?


© Bloomberg
Postponed Not Canceled?

The earnings situation at Germany’s industrial companies remains poor and is improving only slowly, the Ifo research institute said Thursday in its biannual business survey. Sectors such as clothing and pharmaceuticals are actually faring less well, the researchers said.

It could be worse, though. The fact that on average, companies have relatively high levels of equity on their balance sheets means the hit to the economy will be “far less dramatic” than in the early 2000s, economists Joerg Kraemer and Marco Wagner wrote in the report.

What’s more, new measures will come into force in January that will make it easier for companies to restructure their debt.

Germany has given its insolvency rules a makeover before, introducing a so-called protective shield resembling the U.S. Chapter 11 filings that allow for protection from creditors while a company restructures its business and debt on its own. Effective since 2012, applications for that particular process have surged in recent months.

Galeria Karstadt Kaufhof, Germany’s largest department store chain and one of the country’s most prominent cases this year, on Wednesday exited from such insolvency proceedings after just three months. Before doing so, it cut stores and staff in a self-administered revamp without taking on government-backed loans.

(Updates with details on moratorium in fifth paragraph.)

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