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

The indicators turn red one after the other. After an expected slowdown in the French economy in the first quarter, the horizon for French companies is darkening. Spurred on by immediate measures “at any price”, many sectors were able to take advantage of the months of hibernation by the commercial courts.

With the gradual uncoupling of all those crutches and the worsening of the economy related to the war in Ukraine, most economists expect bankruptcies to rise. In this very uncertain environment, fears of stagflation and recession are increasing. The aftermath of the war in Ukraine may deal a knockout blow to the global economy,” said Daniela Ordonez, economist at Oxford Economics, in a recent press conference.

“No Territory Spared”

In its latest report, published on Monday, April 11, research firm specializing in business data reported Altares a 35% increase in corporate 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 some form of normalcy that also implies a resumption of defaults. The rise is therefore beginning and, in sectors that depend on it, is already very clearly the resumption of consumption habits such as going to the restaurant or to the hairdresser. No territory is spared from the phenomenon”, emphasizes Thierry Millon, Director of Studies at Altares.

The outbreak of war in Ukraine and its economic consequences in the old continent could accelerate difficulties for a number of sectors. “At the beginning of 2022, confidence in the future grew: cash on hand and well-filled order books pointed to an economic recovery. But since February 24th and the start of the Russian invasion of Ukraine, the horizon has darkened: rising energy prices, supply difficulties, material shortages, rising inflation packages… so many signals to be cautious,” he adds. The expert does not expect a wave of insolvencies in the coming months either. With the second round of presidential elections scheduled for April 24, this first-quarter rebound could overshadow outgoing President Emmanuel Macron’s results.

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An increase that is still below pre-crisis levels

The number of defaults jumped from 7,406 to 9,972 compared to the first quarter of 2021, 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 the most affected by this bankruptcy movement. In fact, almost half of the companies that filed for bankruptcy in the first quarter were founded less than five years ago.

Those registered just before the start of the pandemic or during the health crisis were particularly affected (+52%). “The difficulties of young businesses are particularly pronounced in the “multi-store” sectors (mainly general grocery stores), where the defects are three times as numerous this quarter, but also in the catering trade (+180%), where the number of procedures is exceptional was low a year ago”, refer to the authors of the study.

SMEs on the brink

Relative to company size, small and medium-sized enterprises (SMEs) with fewer than 50 employees face many more difficulties than larger ones. This means that the number of insolvencies between January and March increased by 56% compared to the first quarter of 2021, exceeding its pre-crisis level. On the other hand, companies with more than 50 employees seem to be resisting this spate of bankruptcies.

Trade and gastronomy were hit hard

The other lesson of this study is that activities aimed at consumers are at the forefront. These are mainly trade, gastronomy and services for private individuals. In the general food trade (+83%) or in the clothing trade (+34%), the growth is staggering.

For the catering trade, this increase is not really surprising given the long months of closure of all businesses. Many restaurateurs had expressed strong fears when state aid was switched off. Added to this were the numerous layoffs and severe recruitment difficulties since autumn 2021.