IHK fears “second wave” of insolvencies

The current insolvency statistics gloss over the actual status quo, believes Gregor Werkle. The head of economic policy at the Mittlerer Niederrhein Chamber of Commerce (IHK) paints a bleak picture of the current economic situation and expects the probability of business failures this year to be at least twice as high as in 2019.

Gregor Werkle, Head of Economic Policy IHK

The German government has extended the suspension of the obligation to file for insolvency to the end of April. Do you receive many inquiries from the business community on this topic?
Gregor Werkle The number of crisis consultations is indeed increasing. Without the suspension of the obligation to file for insolvency, significantly more companies would have to file for insolvency. Nevertheless, many entrepreneurs hope to be able to avoid insolvency through the state’s Corona aid. The prerequisite, however, is that the companies are quickly given the prospect of opening for business.

This suspension is subject to conditions. How do you assess these conditions?
Gregor Werkle We consider the conditions attached to the suspension to be fundamentally sensible, because they are linked to the fact that insolvency can be prevented by the Corona aid. Nevertheless, those responsible in the company are exposing themselves to a liability risk that should not be underestimated. If insolvency is ultimately unavoidable, insolvency administrators will examine any claims against the management for delaying insolvency.

The Mittlerer Niederrhein Chamber of Commerce has set up an insolvency hotline for small and medium-sized companies in cooperation with the Schuldnerhilfe in Cologne. How is this hotline being used?
Gregor Werkle So far, with three consultations per month, it is still very modest. However, we fear that demand will increase significantly. It is important to us that the entrepreneurs affected are not left alone in this difficult situation and can take advantage of cost-effective help.

The “Act on the Further Development of Restructuring and Insolvency Law” came into effect on January 1. It is aimed at companies that are threatened with insolvency – does the law buffer the harshness of the pandemic?
Gregor Werkle The law is indeed intended to enable early restructuring in the event of imminent insolvency.However, the stabilization and restructuring framework is very complicated and therefore requires a lot of consultation. We fear that this is only a solution for larger companies and not for the large number of SMEs affected by Corona.

How do you see the situation of financing conditions under the current difficult conditions (credit supply and conditions)?
Gregor Werkle More than half of the Corona aid disbursed to date has been through KfW loans. The KfW special measures are certainly a great help at the moment. However, loans have to be repaid. The longer the pandemic lasts, the more difficult it will be to raise the necessary debt service. We therefore fear a “second wave” of insolvencies as well.Is the Chamber and Commerce in talks with the banking community on these issues?
Gregor Werkle Yes. We have a regular exchange of experiences with regional bank representatives as well as the guarantee and subsidy banks. The exchange also serves in particular to identify topics for political work at an early stage.

Many experts fear that the true extent of the crisis will only become fully apparent once the federal government stops providing aid. There is talk of zombie companies that are currently only being kept alive by the cash injections. How critical do you see the situation?
Gregor Werkle Indeed, the situation is currently being glossed over by the insolvency statistics. We expect significantly more insolvencies this year. We were able to analyze this on the basis of updated fundamental data from Creditreform at the end of last year. Specifically, we expect the probability of corporate default in 2021 to be twice as high as in 2019 – in the event that the economy grows only slowly. In the event of stagnation this year, the risk of default will grow by a further more than 20 percent.

Are SMEs significantly more affected than large companies?
Gregor Werkle Smaller companies in particular often do not have the necessary capital reserves to survive such a crisis. Many sole proprietors are currently using their retirement savings to somehow make ends meet.

Corona is hitting sectors such as tourism, gastronomy and retail particularly hard – is this reflected in your data?
Gregor Werkle Yes, for industries like hospitality, even if the economy recovers quickly, the risk of default is higher because businesses have been closed for much longer and have been subject to much stronger restrictions than others. For retail, the risk of insolvency is also elevated.

There is much discussion about lockdown policies. How should this be handled?
Gregor Werkle Of course, health protection is the top priority, but the affected industries must still be given the opportunity to operate profitably again while complying with hygiene measures. With the use of new technologies, as well as rapid tests and mass vaccinations, we will be able to gradually open up other sectors responsibly in the spring.

Private consumption has plummeted. Do you have a forecast for when normalization will occur?
Gregor Werkle On the one hand, consumer spending has slumped due to the closure of entire sectors of the economy. When restaurants, retailers and the recreational industry have reopened and travel is also possible again with fewer restrictions, there will be an initial normalization of private consumption. Secondly, the slump is of course linked to many people’s worries about their jobs and the reduced income due to short-time working. It will therefore certainly take until 2022 or even longer before we return to the pre-crisis level of consumer spending.

Do you come across any example companies in the current situation that give you hope?
Gregor Werkle The industry – despite the lockdown – is confident for 2021. That gives us courage. Products from the Lower Rhine area are in demand worldwide. We must therefore not damage supply chains by closing borders.

Germany traditionally scores poorly when it comes to the level of digitization. Where do you see the reasons? Have we made any progress in this crisis? Where do you see needs and opportunities in the area of digitization?
Gregor Werkle We recognized that the level of digitization in public administrations was mediocre in some cases. We are therefore actively supporting the state of North Rhine-Westphalia in setting up the business service portal, which will enable all administrative services to be handled digitally in the future.

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