Bankruptcies stable as pandemic aid lasts

While the pandemic--and business aid--last, the number of bankruptcies in Luxembourg has remained stable  Library photo: Romain Gamba / Maison Moderne

While the pandemic--and business aid--last, the number of bankruptcies in Luxembourg has remained stable  Library photo: Romain Gamba / Maison Moderne

The number of companies in Luxembourg going bankrupt remained stable between 2020 and 2021, with 1,199 businesses closing their doors last year and small enterprises with fewer than five employees mainly affected.

The wave of bankruptcies expected in the wake of the pandemic has so far been staved off, and numbers have remained stable over the past years, from 1,195 bankruptcies in 2018 to 1,263 in 2019 and 1,199 in both 2020 and 2021, data collected by Creditreform shows.

“The development of bankruptcies in 2022, as well as company closures, will be determined by the expiry of corona aid and material bottlenecks in some sectors,” the credit analyst said.

Already for 2021, Creditreform had said that pandemic aid would be “decisive” in the development of bankruptcies. As the pandemic drags on, the government has successively extended its partial unemployment scheme and grants for companies directly hit by pandemic restrictions.

The services sector accounted for 836 bankruptcies, compared to 882 in 2020. In the hospitality industry, the number of closures was down from 128 in 2020 to 116 last year. However, more businesses in the trade sector shut up shop, 244 up from 214 the year before. And bankruptcies in the construction sector were up more than 20%, from 92 to 112 firms.

Young businesses fared better, making up around one in five bankruptcies, as support programmes help boost business creation. But bankruptcies pick up in year six and seven after creation as companies try to consolidate.

“The bankruptcy rate for companies less than five years old is stable at a low level, which is due in particular to the good support of the state,” Creditreform said. The future for older companies also depends on how they adapt to a changing environment. “Creditreform Luxembourg assumes that, due to the economic transformation in Luxembourg, the bankruptcy trend among older companies in the grand duchy will continue to be at a high level.”

Neighbouring Germany and France showed similar trends for their annual corporate insolvency filings, the analyst said, with bankruptcies down 10% in Germany and even 20% in France, according to preliminary figures. “A slight increase can be observed in Belgium.”

Luxembourg lawmakers since 2013 have been reviewing bankruptcy rules, aimed at strengthening protection for companies by allowing restructuring before filing for insolvency.

Under the proposals, failed entrepreneurs would also get an easier second chance at business creation, depending on the reasons for their business going down.