Study on the status of insolvencies in Romania for 2013

The preliminary data shows a slight increase, mainly generated by the advance registered in Q4…

According to the preliminary data published by BIP (Bulletin of Insolvency Proceedings) and based on Coface methodology, in 2013 26,372 new insolvency proceedings were initiated, with approximately 2% more than during the previous year (25,842 insolvency proceedings).The data from this study is preliminary, and the final data will be confirmed by the end of the first quarter of the current year.Based on its own computations, Coface estimates that the actual number of newly-initiated insolvency proceedings during 2013 is approximately 27,145, with an actual increase around 5%, compared to the previous year. The initiating pace of these proceedings accelerated during Q4, the increase being triggered by the negative effect conveyed by the insolvency of a record number of medium and large companies, and probably also by the intention of certain companies to "rush" the insolvency initiation in the context of imminent changes within the insolvency procedural code. Thus, the preliminary data shows a 12% increase of insolvencies initiated during Q4 of 2013, compared to the same quarter of the previous year, and Coface’s estimations concerning the final data place the increase to be more than 20%.

…but what lurks behind the figures? The negative effects are significant and will impact the private economy!

In the current context, the numerical evolution of the new insolvency proceedings becomes relevant solely from a statistical point of view, even though in Romania the phenomenon is a wide one, under the circumstances of a decrease by 20% or even 30%. The numerical evolution can be expressed both in absolute and relative values, by reporting to the practice of other European countries.

Even though the quarterly frequency data related to the first nine months of 2013 showed a relative stagnation of insolvencies, the preliminary annual figures forecast a slight increase of newly-initiated insolvencies during 2013. Most alarming is that, in 2013, there was a record number of insolvencies among medium and large companies. The number of companies with a turnover higher than 1 MEUR, which became insolvent during 2013, is 718, compared to a level of 485 insolvencies within the same category registered during 2012. Chapter three details all the issues related to this risk.

Which is the impact of these insolvencies?

This is and will continue to be a major one, considering the record number of medium and large companies that became insolvent. The final part of chapter four analyzes this issue in detail and monitors two distribution channels of the negative shock:

• Financial plan- based on its own calculations and taking into consideration the insolvencies registered during 2013, Coface considers that debts of approximately 16 BRON (financial and commercial) remained uncovered. Approximately 40% of these had an impact on the banking system, and represent the main reason of increased ratio of bad loans granted to non-financial companies by 4 percentage points during the last year. The remainder of 60% will have an impact on the private partners, which, at their turn, may become unable to pay their debts to their suppliers, the domino effect being twice as fast (based on uncovered debts) as the one registered during the previous year.

• Social plan- the initiated insolvency of the 26,372 companies during 2013 determined the loss of approximately 100,000 jobs, of which more than 60% were concentrated in the following five sectors: The manufacture of textile products, clothing and footwear items; Constructions; Manufacture of chemical substances and products; Other personal services; Metallurgical industry. The social impact of the insolvent companies during 2013 is similar to the one registered by the companies that became insolvent in 2012, but with 41% higher compared to 2011.