With about €338 million in covid related debt owed by the general economy, following the aid provided by the government in the aftermath of the crisis, the chamber says that stricter regulation has impacted craft businesses. The sector no longer benefits from subsidies--except for the events industry--and business owners struggle to access funds to repay their debt with banks that are tightening credit conditions, it said in a statement.
This is compounded by supply challenges accessing raw materials and a subsequent hike in prices, which many craft companies have to deal with, it said.
“Craft businesses are currently weakened, and we think that they could be hit hard in a few months, with delays," said Tom Wirion, director general of the Chamber of Trades, adding that it is imperative to modernise Luxembourg's bankruptcy regulations, particularly with regard to the insolvency of commercial companies to avoid a very delicate situation in the near future.
Specifically, the chamber is calling for a clearer distinction between companies that acted in a fraudulent manner, therefore requiring firm measures, and companies suffering from the effects of an unfavourable economic situation without having committed any gross offences and deserving a second chance.
A reform of insolvency law was first presented in 2013. The proposal has undergone a series of changes since then but has yet to see the light of day. Justice minister Sam Tanson in an interview with Delano said she is optimistic that it forms part of a series of reforms that will be concluded before the next elections in 2023.
To support businesses deserving of a second chance, the chamber called for “necessary legal guarantee and administrative simplicity”, and said it will continue to monitor the evolution of bankruptcies in the craft industry.
Bankruptcies and liquidations
Since the onset of the crisis, several sectors have been disproportionately hit by the pandemic. The crafts sector has experienced increasing bankruptcies over the past three years. However, the chamber notes that the number of bankruptcies in the industry is not yet alarming considering the craft industry only accounts for 11% of total bankruptcies in the grand duchy.
72 businesses in the craft industry, which represents 21% of Luxembourg businesses, declared bankruptcy in the first half of the year compared to 59 bankruptcies in the same period in 2019 (+27%), and 47% more bankruptcies compared to 2020.
Luxembourg's national statistics bureau, Statec, in a press release on 21 September said that the number of bankruptcies recorded this summer remains stable compared to the years preceding the covid-19 pandemic. It reported 180 bankruptcies (117 in July and 63 in August) and 70 liquidations between July and end of August 2021. For the month of August 63 bankruptcies were declared compared to 56 in 2020, 74 in 2019 and 110 in 2018.
In August bankruptcies mainly involved the trade and crafts sector (14), and holding companies and investment funds (12 bankruptcies). No liquidations were pronounced by the courts in August, however the report noted an increase of +32.7% in the loss of paid employment in the first half of the year.