After a noticeable increase in December, the number of corporate bankruptcies in Germany trended downward in January 2021. According to data from the most recent IWH Bankruptcy Update, 689 companies filed for bankruptcy in the first month of the year. This was 23% below the December 2020 figures but slightly above the average of the previous three months. One reason for the unexpected decline in January could be renewed filing requirement exemptions for certain companies.

As in previous months, bankruptcies affected relatively few jobs. According to IWH research, the largest 10% of companies declaring bankruptcy in January employ a total of 5,500 people, which is below any other month in 2020. The 10% largest companies make up the vast majority of all job losses due to insolvency. (For a detailed description, see IWH Policy Note 2/2021.)

Steffen Müller, IWH’s head of the Department of Structural Change and Productivity and the director of Bankruptcy Research, attributes the low insolvency numbers to a mixture of state aid measures, exemptions to the filing requirement, and a wait-and-see attitude on the part of companies. “Many companies entered the crisis with healthy levels of liquidity,” he explains. “This allows them to hold out until the post-crisis recovery.” (For a detailed description, see IWH Policy Note 2/2021.)

The obligation to file for bankruptcy was recently suspended until April for companies eligible for “November and December aid” from the federal government. This is likely to dampen the bankruptcy trend through spring. “An analysis of our leading indicators suggests that a wave of insolvencies in the coming months is unlikely," Müller said.

In particular, leading indicators predict no near-term increase in bankruptcies in retail and hospitality, sectors that have been hit hard by the lockdown. According to IWH, this is a sign of the effectiveness of federal aid in November and December and of companies’ making use of the filing requirement exemptions. In October, after the filing exemption was temporarily rescinded, companies in these sectors saw a disproportionately high number of bankruptcies. This suggests that the number of insolvencies in retail and hospitality could increase once the filing obligation is reinstated.