1,199 companies closed permanently in 2020  Shutterstock

1,199 companies closed permanently in 2020  Shutterstock

Bankruptcies in 2019 for the first time cracked the 1,200 mark and remained relatively stable last year despite the outbreak of the coronavirus pandemic and lockdown measures hampering business activity.

The services sector accounted for 882 of the business closures, including 127 in the hospitality industry, credit analyst Creditreform said in a press release. Commerce accounted for 214 bankruptcies, followed by 92 construction companies and 11 manufacturing firms.

Businesses younger than five years fared better, accounting for just over 18% of companies closing down. However, the following years appear to be critical as 202 companies (16% of the total) folded in their sixth and seventh year, the highest number by foundation year.

While the statistics appear optimistic at first glance, Creditreform said only 2021 and 2022 will show what effect the pandemic will have on companies in the country.

“The expiry of corona aid will be decisive for the development of bankruptcies in 2021,” said Creditreform manager Herbert Eberhard. Because of a strong services sector, bankruptcies are nonetheless likely to be less pronounced than in neighbouring countries, he said.

Luxembourg expanded its partial unemployment scheme during the pandemic, which covers 80% of salaries for staff working reduced hours because of lockdown measures. The government also launched a series of grants and loan guarantee programmes to help shore up businesses.

In its most recent economic forecast, national statistics office Statec anticipated the economy to shrink by between 3.5% and 4.5% in 2020. For 2021, it expects a rebound of 4% at best or -0.5% stagnation in its worst-case forecast.

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.