The paradox of corporate insolvencies in Europe: miracle and mirage

The economic crisis caused by the COVID-19 pandemic heralded major business failures and insolvencies in France, and across the eurozone as a whole. But, in 2020, and even if the real impact of the COVID-19 crisis remains uncertain, the number of insolvencies actually fell in all major European economies. According to research by Coface, a leading player in credit insurance, the gap between the expected deterioration of the companies’ financial health and the number of insolvencies suggests that there is a high number of “hidden insolvencies” that have been postponed, rather than prevented. This suggest that, in both France and Europe, there is high number of unviable companies whose failure is only a matter of time.

A similar trend in the main eurozone countries

In France, the fate of 22,000 companies remains unresolved: these "hidden insolvencies “ are expected to gradually materialise between now and 2022. Coface estimates the number of hidden insolvencies at 8,600 in the construction sector, 1,800 in retail, 1,500 in manufacturing, 1,200 in business services and 800 in transport. So far, although the economic crisis has affected sectors unevenly, the number of insolvencies has fallen in all sectors, including those that have been at a standstill for several months. Similarly, all French regions recorded a clear fall in the number of insolvencies in 2020, ranging from 34% in Brittany to 49% in Corsica. In France, without the country’s Solidarity Fund, the operating result of the hospitality and catering sector would have contracted by an estimated 109%, instead of the 17% observed in Coface’s results. The impact of insolvencies on job losses was nevertheless limited at 126,000, the lowest level since 2006.