Insolvency record low: 4500 zombie companies because of corona aid?

Company bankruptcies

The number of corporate insolvencies will drop to a new low in the 2020 corona year.

(Photo: dpa)

Berlin The corona crisis puts many companies in dire straits. According to the survey, every second company in individual industries is experiencing payment difficulties because the business is closed due to the lockdown and customers are absent.

On the other hand, there is an astonishing effect: According to a study by the Institut der deutschen Wirtschaft (IW), which is available to the Handelsblatt, the number of corporate insolvencies is expected to drop to a new low in 2020.

According to IW calculations, only a little over 17,000 companies will go bankrupt this year. The number of corporate bankruptcies will therefore drop by around nine percent compared to 2019 to a new low of 17,060 – despite the sharp economic downturn of five to six percent this year.

There should actually be a lot more bankruptcies: “The severe economic slump and the lockdowns in the spring and at the end of the year, however, meant that a sharp increase in the number of insolvencies of around 15 percent could be expected,” the study says. In mathematical terms, this will result in around 4,500 fewer bankruptcies at the end of 2020 than expected – “possibly zombie companies,” writes the IW.

In part, the surprisingly low number of bankruptcies can be attributed to the federal government’s rescue policy. The federal and state governments helped companies with a large number of financial aids.

Above all, during the crisis, the federal government suspended the obligation to file for insolvency for companies until the end of September. For some companies that are over-indebted but not yet insolvent, the suspension continues until the end of the year.

But the interesting thing is: Even since the obligation to file for insolvency has been in effect again for most companies, early indicators have not signaled any increase in the number of insolvencies. It hasn’t risen much since October.

Next year there is a threat of an increase in company bankruptcies

There could be a catch-up effect in the coming year and the total number of insolvencies according to IW will be 23,250. This would be 36 percent more than in 2020, but still less than in all years between 1996 and 2014.

The IW has two possible explanations for the surprisingly low number of bankruptcies. For example, the state aid to corona could have led to overcompensation, so that fewer companies than in 2019 are at risk of survival. But this seems unlikely.


The second explanation: The 4,500 companies that unexpectedly did not go bankrupt are zombie companies that are not economically viable but still exist.

Zombie companies always exist, even without a crisis. The Creditreform business information database estimated the number of “zombie companies” in Germany at 550,000 in August. The crisis policy of the federal government could lead to a drastic increase, warned Creditreform. Should the federal government suspend the obligation to file for insolvency, as discussed at the time, by the end of March 2021, the number of zombie companies would rise to 800,000.

In particular, the extension of short-time working until the end of 2021 into next year led to a debate among economists: Is the state keeping too many undead companies alive through its courageous intervention in the crisis? That would delay a necessary structural change in the economy.

Zombie companies throttle growth

Zombie companies prevent the “creative destruction” in the sense of the old master economist Joseph Schumpeter. The self-cleaning process of the economy no longer takes place. The “natural selection of the competition” is being undermined, criticized experts from Commerzbank.

Scarce resources would be misused because these funds would sustain zombie companies and thereby misdirect workers who could be used more productively elsewhere. The result: the more zombie companies there are, the lower the growth of an economy. This is exactly what one of the economists’ camp warns of. Politicians should therefore not overdo it with state intervention even in the crisis.

However, there are also many economists who cannot do anything with this argument in the corona crisis. For example, IW boss Michael Hüther argues that the corona crisis is not a clean-up crisis.

The crisis did not break out because, as before the 2008 financial crisis, the economy had pumped up speculative bubbles that would now have to be corrected by a recession. But by a virus for which nobody in the economy is to blame. Before the financial crisis there were more zombie companies than today, wrote the Bundesbank recently.

In addition, politicians have ordered the shops to be closed. For this reason, too, the state must help the economy as best it can through the crisis, believe economists like Hüther in agreement with the federal government.

The logic behind it: It is true that it causes economic costs if the state temporarily rescues companies that would not have been able to survive even without the corona crisis. But if healthy companies go bankrupt in the corona crisis because they don’t get any help, the overall economic damage to the economy is greater.

More: Bankruptcy trustees warn of zombie companies


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