According to the last DIHK Corona flash survey among more than 13,000 companies, one in eleven of the respondents is currently threatened with bankruptcy, 80 percent of them small businesses. And also the number of bankruptcies of companies with a turnover of at least 20 million euros was already higher than the total number of the previous year at the end of the third quarter.
So what will happen in 2021? Are government measures taking effect, or is the wave of insolvencies just slowing down due to government aid? In the public perception, the problems in the hotel and hospitality industry are primarily present. But rationalization measures, job cuts and underutilized production capacities can become a reality in many industries, especially in medium-sized companies. The Munich Ifo Institute is also assuming a significant recession, depending on how long the restrictions on public life last.
Well-equipped tool case
The state has many options: suspension of the obligation to file for insolvency, short-time working allowance, KfW direct loans, federal and state guarantees, economic stabilization funds – up to possible tax deferrals and sales tax reductions. Not all are equally effective. Most companies expect little from the sales tax cut, but a lot from short-time working.
Accordingly, it is used intensively: The Ministry of Labor has already paid out over 18 billion euros in short-time work benefits, and 2.6 million people are currently still on short-time work. In this way, companies have certainly been able to avert insolvencies for the time being, but the need for cost-cutting measures and restructuring remains in many cases.
Problem: The instrument will be expanded to 2021 and, together with bridging aid, emergency loans and low interest rates, will keep companies alive that would no longer be viable on their own – the term “zombie company” is making the rounds. The suspension of the obligation to file for insolvency for over-indebted companies does the rest. Companies that actually have to file for bankruptcy continue to operate at the expense of the state, even though the operating profit is insufficient for interest and repayment.
Last exit restructuring
The risk of deadweight effects increases the longer the situation lasts and aid payments flow without specific conditions. If interest rates rise or the aid programs are scaled back, the air is likely to quickly become very thin for many companies. Corporate managers can then only agree to defer the repayments in order to remain able to act and to tackle the restructuring.
In addition, politicians rely on the EU directive on preventive renovation, which is to be implemented in German law in 2021. It should therefore be possible to use restructuring tools even before they are ready for bankruptcy. Companies should be able to positively change the balance sheet structure at an early stage with self-responsible restructuring measures and thus avoid insolvency.
Success factor leadership
A significant increase in insolvency cases can therefore be expected from January, and the wave is unlikely to abate at least until the middle of the year. Law firms, auditors, insolvency administrators and restructuring consultants have been positioning themselves for the expected additional business for months.
In addition to the external consultants, the management team of the troubled company comes into focus. New processes, new products and services, in extreme cases even a new business model – how much “change” can the existing team achieve? The executives have to actively drive the change, they have to overcome their own reservations and motivate the entire workforce and take them with them along the way. And that although the success is far from certain.
This is why owners or supervisory bodies are increasingly pushing for a survey of the competencies and skills represented in the management team, a so-called audit. It provides information about whether the factors for a successful restructuring are in place or not. One possible result of such an audit can be to redistribute certain tasks in the team, another option is the targeted search for the missing skills and experience outside the company – temporarily or permanently. Ultimately, even external consultants can only make a restructuring a success if they can rely on an energetic and determined management team.
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