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Business insolvency in industrial countries Risk is stabilising worldwide, but still rising in Europe.

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euler hermesEconomic Outlook

is issued quaterly by the economistsof the different companies in thegroup.❙ Euler Hermes SFAC:Philippe Brossard, Marie-Christine Schmitt, Maxime Lemerle❙ Euler Hermes Kreditversicherung:Manfred Stamer, Dr. Romeo Grill❙ Euler Hermes UK: David Atkinson❙ Euler Hermes SIAC: Andrea Pignagnoli❙ Euler Hermes Credit Insurance Belgium: Paul Becue❙ Euler Hermes ACI: Dan North

• Publication Director:Philippe Brossard• Graphic design: Claire Mabille • Production editor: Martine Benhadj • Administration anddocumentation: Anne-Marie Bégoc• For further information, contact: Support Direction de la Recherche1, rue Euler, 75008 Paris —Tel.: +33 (0)1 40 70 81 33Fax: +33 (0)1 40 70 51 17Euler Hermes is a limited companywith a Directoire and SupervisoryBoard, with a capital of 13,267,930euros.• Photoengraving: Ateliers AndréMichel-Paris• Printing: Evreux Compo – Evreux,France — Permit November 2003 ISSN 1 162 – 2 881

Contents

◗ Editorial p. 3

◗ Business insolvency in industrial countries p. 4

◗ USA. Economic recovery, fewer insolvencies p. 6

◗ Japan. Lower risks p. 8

◗ Germany. Record figures p. 10

◗ France. Industry and transport under pressure p. 12

◗ United Kingdom. Business insolvencies are slowing p. 14

◗ Italy. Statistical uncertainties p. 16

◗ Spain. Insolvencies up despite sustained growth p. 18

◗ Netherlands. Strong acceleration in insolvencies p. 20

◗ Belgium. The increase continues p. 22

◗ Denmark. Improvement underway p. 24

◗ Sweden. Services and construction in difficulty p. 26

◗ Norway. Upsurge in insolvencies p. 28

◗ Major insolvencies worldwide p. 30

◗ World growth • Economic forecasts by country p. 32

◗ Contributions p. 34

The major failures in the world in 2003:Name of company Latest turnover (e millions) Sector Country Date of failure Number of employees

Fleming Cos. Inc. 13,572 Groceries & Related Products US 4/03 23,370

Healthsouth Corp. 4,072 Specialty outpatient clinics, nec US 4/03 53,216

Spiegel Inc. 3,076 Catalog & mail-order houses US 3/03 14,800

The Penn Traffic Co. 2,172 Grocery stores US 5/03 nd

Superior Telecom Inc. 1,854 Nonferrous wiredrawing & insulating US 3/03 5,300

WestPoint Stevens Inc. 1,704 Broadwoven fabric mills, cotton US 6/03 16,700

Grundig AG 1,200 Consumer electronics GER 4/03 5,300

Magellan Health Services, Inc. 1,095 Psychiatric hospitals US 3/03 12,800

Atlas Air Worldwide Holdings Inc. 1,086 Air transportation, scheduled US 3/03 nd

Acterna Corp. 1,057 Communications Equipment US 5/03 4,973

Wickes Inc. 981 Lumber & other building materials US 2/03 4,090

Emtec Magnetics GmbH 730 Multimedia recording technology GER 4/03 2,700

Storteboom Groep 500 Agriculture / poultry NL 5/03 1,050

Groupe Jean Lion 441 Food Trade FR 5/03 41

Groupe Air Lib 406 Air transportation, scheduled FR 2/03 3,200

Source: Euler Hermes ; see page 30.

Measuring overall bankruptcy risk in the major industrialcountries is no easy thing. Legal conditions, statisticalsystems and, on a very basic level, business practices areso different from country to country that it is very hardsimply to add up bankruptcy figures provided by national

sources. Nonetheless, to obtain an overall view of bankruptcy risk world-wide, we have created a Global Insolvency Index (see graph). The indexshows that business bankruptcies in the major industrial countries roseby a net 3% in 2000 and 6% in 2001, stabilising from 2002. However, thisoverall trend masks wide differences, with a net improvement in theUS, where the number of bankruptcies is falling, and a worsening inEurope, where bankruptcies should increase by 10% this year and by3.5% in 2004.This contrast directly coincides with the difference in economic growthin the two areas. The euro zone will see zero growth this year, with 2004bringing only a modest recovery and 1.6% growth. The US, by compari-son, should enjoy growth of 2.5% this year and 3.5% in 2004. There is,in fact, a close link between bankruptcy trends and economic growth.Depending on the country, it takes a minimum of 2% to 3% growth to sta-bilise the number of bankruptcies. Being unable to attain this level ofgrowth in the near future, Europe will retain a high – and growing – bank-

ruptcy risk.Paradoxically, US firms lead the list of the major col-lapses seen around the world. However, this is due to theeffects of scale. The US on its own accounts for 42% ofthe total GDP of the industrialised countries covered byour study. The major US bankruptcies are above all reper-cussions of past developments (e.g., the crisis in the neweconomy and later in air transport). They do not com-promise the American economy’s future growth. InEurope, however, an examination of the different sectorsshows a strong concentration of bankruptcies in indus-try. This is the sign of a serious loss in competitiveness,one that threatens to have long-lasting consequences.The 30% appreciation in the euro over 18 months isundoubtedly connected with this.

Philippe Brossard

Editorial

Risk is increasing in Europe but falling in the US.

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Sources: Euler Hermes SFAC; see page 5

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120

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Western Europe

Industrial countries

04030201009998979695

Basis 1997=100

Euler Hermes Global Insolvency Index

Insolvencies 1997 1998 1999 2000 2001 2002 2003 2004

USA 54,027 44,367 37,884 35,472 40,099 38,540 37,700 35,300

Canada 12,177 10,780 10,023 10,040 10,371 9,458 9,400 9,700

Japan 16,464 18,988 15,352 18,769 19,164 19,087 17,600 17,700

Germany 27,474 27,828 26,476 28,235 32,278 37,579 41,300 43,000

France 61,068 54,543 48,527 43,572 42,036 42,897 46,000 46,100

Italy 14,893 13,740 12,178 11,641 10,767 10,000 10,000 10,000

Spain 1,135 896 774 828 759 880 1,000 1,100

NDL 4,409 4,015 3,238 3,579 4,330 4,963 6,300 7,200

Belgium 7,751 6,924 7,163 6,791 7,062 7,200 7,600 7,800

Austria 5,053 4,816 5,860 5,340 5,178 5,281 5,000 4,800

Portugal 302 380 410 370 390 400 400 400

Finland 2,650 2,208 2,250 2,111 2,035 2,173 2,300 2,300

Greece 1,299 871 731 633 612 650 700 700

Luxembourg 417 399 556 581 750 600 700 700

Ireland 505 610 677 668 663 650 700 700

UK 37,051 37,752 43,086 43,845 44,747 46,892 52,300 54,600

Denmark 1,759 1,652 1,636 1,770 2,329 2,469 2,400 2,400

Sweden 10,436 8,855 6,645 6,733 7,433 7,930 8,300 8,600

Norway 3,333 3,347 3,243 3,576 3,562 4,473 5,600 5,800

Switzerland 4,552 4,363 4,196 3,842 3,613 4,002 4,500 4,400

% Change 1997 1998 1999 2000 2001 2002 2003 2004

USA 1% -18% -15% -6% 13% -4% -2% -6%

Canada -14% -11% -7% 0% 3% -9% -1% 3%

Japan 11% 15% -19% 22% 2% 0% -8% 1%

Germany 8% 1% -5% 7% 14% 16% 10% 4%

France -6% -11% -11% -10% -4% 2% 7% 0%

Italy -7% -8% -11% -4% -8% -7% 0% 0%

Spain -17% -21% -14% 7% -8% 16% 14% 10%

NDL -3% -9% -19% 11% 21% 15% 27% 14%

Belgium 3% -11% 3% -5% 4% 2% 6% 3%

Austria -11% -5% 22% -9% -3% 2% -5% -4%

Portugal 20% 26% 8% -10% 5% 3% 0% 0%

Finland -13% -17% 2% -6% -4% 7% 6% 0%

Greece -6% -33% -16% -13% -3% 6% 8% 0%

Luxembourg 14% -4% 39% 4% 29% -20% 17% 0%

Ireland 40% 21% 11% -1% -1% -2% 8% 0%

UK -7% 2% 14% 2% 2% 5% 12% 4%

Denmark 0% -6% -1% 8% 32% 6% -3% 0%

Sweden -8% -15% -25% 1% 10% 7% 7% 0%

Norway -4% 0% -3% 10% 0% 26% 32% 17%

Switzerland 10% -4% -4% -8% -6% 11% 12% -2%


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◗ Annual bankruptcy figures clearly re-flect the economic health of a country.However, international comparisons re-main highly relative, since the defini-tion of business bankruptcy varieswidely from country to country.

◗ First, the very notion of ‘a company’differs greatly. And indeed, the numberof businesses in a country has no directconnection with its economic might. Forexample, Japan has over 6 million busi-nesses, more than the US with 5.7 mil-lion businesses, but Japan’s GDP isaround half that of the US. Differencesin national figures are in large part dueto the legal and statistical distinctionsmade between very small companiesand individual entrepreneurs. In thecase of the US, if we counted individualentrepreneurs as well as companies,we would arrive at a figure of 20 millionbusinesses.

◗ Second, even when we look at bank-ruptcy rates (the number of failures per100 companies) and not just grossbankruptcy numbers, these are stillvery different: the relevant laws andbusiness practices also vary greatly. Forinstance, in Japan, Spain and Italy, thedefinitive legal declaration of insol-vency is delayed as long as possible,and negotiated settlements betweenparties are more common. As a result,bankruptcy statistics only imperfectlyreflect the true number of businesses indifficulty.

◗ Lastly, beyond the impact of cyclicalfluctuations, different countries mani-fest very different average long-termgrowth rates, and this in part explainstheir different bankruptcy rates. Thus,from 1991 to 2003, bankruptcies fell byhalf in the US, remained fairly steady inFrance, but multiplied by a factor of 4.5in Germany. Over the same period, the

Business insolvencyEuler Hermes Global

Sources: national figures, Datastream, Euler Hermes forecasts

Number of insolvencies

Annual change in insolvencies


index 100: 1997 Weight 1998 1999 2000 2001 2002 2003 2004

Industrial Countries 100.0% 94 83 85 91 92 93 92

Western Europe 34.9% 95 92 92 96 103 113 117

USA 41.8% 82 70 66 74 71 70 65

Canada 3.1% 89 82 82 85 78 77 80

Japan 20.3% 115 93 114 116 116 107 108

Germany 8.0% 101 96 103 117 137 150 156

France 5.6% 89 79 71 69 70 75 75

Italy 4.6% 92 82 78 72 67 67 67

Spain 2.1% 79 68 73 67 78 89 94

NDL 1.6% 91 73 81 98 113 143 162

Belgium 1.0% 89 92 88 91 93 98 101

Austria 0.8% 95 116 106 102 105 99 95

Portugal 0.5% 126 136 123 129 132 136 126

Finland 0.5% 83 85 80 77 82 87 87

Greece 0.5% 67 56 49 47 50 54 54

Luxembourg 0.0% 96 133 139 180 144 168 168

Ireland 0.4% 121 134 132 131 129 139 139

UK 6.1% 102 116 118 121 127 141 147

Denmark 0.7% 94 93 101 132 140 138 134

Sweden 1.0% 85 64 65 71 76 80 82

Norway 0.7% 100 97 107 107 134 167 173

Switzerland 1.0% 96 92 84 79 88 99 97

31/12/02 % of WorldGDP

Number ofCies

Number ofinsolvencies

InsolvencyRate

USA 32.86 5,717,000 35,472 0.62%

Canada 2.40 1,930,769 10,040 0.52%

Japan 15.94 6,138,000 18,769 0.31%

Germany 6.26 2,191,827 28,235 1.29%

France 4.37 2,382,915 43,572 1.83%

Italy 3.59 2,757,217 11,641 0.42%

Spain 1.63 241,736 828 0.34%

NDL 1.24 441,335 3,579 0.81%

Belgium 0.77 671,029 6,791 1.01%

Austria 0.63 247,535 5,340 2.16%

Portugal 0.35 547,230 370 0.07%

Finland 0.40 217,277 2,111 0.97%

Greece 0.38 744,992 633 0.08%

Luxembourg 0.00 19,754 581 2.94%

Ireland 0.32 68,136 668 0.98%

UK 4.82 3,004,222 43,845 1.46%

Denmark 0.54 280,000 1,770 0.63%

Sweden 0.77 249,613 6,733 2.70%

Norway 0.53 203,863 3,576 1.75%

Switzerland 0.80 309,210 3,842 1.24%

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average economic growth rate was3.1% in the US, 1.8% in France and 1.2%in Germany.

◗ In order to overcome the problemsposed by differences in national condi-tions and construct an overall indicatorof bankruptcies in the major industrialcountries, we have created an index ofbankruptcies by country, with an indexbasis of 1997=100. From these nationalindices, we have created the Euler Her-mes Global Insolvency Index. Theweighting of each country within the in-dex is based on its GDP at current ex-change rates.

◗ This global index gives clear evidenceof the economic downturn of 2000-2001, and shows a 10% increase inoverall bankruptcy risk. Since the endof 2001, the overall risk of defaultseems to have stabilised. However, this masks some very differ-ent developments. On the one hand, theUS and Japan have seen a fall in bank-ruptcies, which should further improvein 2004, at least in the US. On the otherhand, the risk of default is clearly up thisyear in Europe, by 10%, with a further in-crease of 3.5% likely in 2004. ■

in industrial countriesInsolvency Index

Insolvency rateinsolvencies/total number of companies

Global insolvency index

Source: Euler Hermes SFAC



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tainly less headline-grabbing than the2001 crashes of Enron and Worldcom orthe 2002 collapses of K-Mart and USAirways. Of the biggest company fail-ures, around thirty had turnover in ex-cess of 120 million euros, and for nineof these the figure was in excess of abillion euros. Heading the list werecompanies active in trade, industry, thehospital sector and air transport, aswell as further casualties in telecom-munications and electronics.

2004 forecastEconomic recovery should allow the USto record growth of at least 2.6% in2003 and 3.5% in 2004. In the morefavourable economic and financial cli-mate for American firms, bankruptciesshould fall by 2% this year to close to37,700 and by a further 6% in 2004.■

Trend in 2003After a grim 2001, when business fail-ures rose by 13% to exceed 40,000, therate of collapses has fallen. In 2002,some 38,500 businesses were declaredbankrupt, a drop of 6%. Cumulative fig-ures for the 12 months to the end ofJune 2003 show a 5% decline on thesame period one year earlier. The eco-nomic environment in the US has im-proved and American firms have em-barked on restructuring.

Sector analysisNo data is available giving a sector-by-sector breakdown of business failures,of which 61% are being liquidated un-der Chapter 7 and just under 30% con-tinue operating under the protection ofChapter 11. The major collapses that oc-curred in the first half of 2003 are cer-

USA Economic recovery, fewer insolvencies

REGULATION

Bankruptcy Code (1978, title 11, United States Code) and Federal Rules ofBankruptcy Procedure. There are 94 “bankruptcy districts” (special Federal legal jurisdictions) in theUnited States, with more than one in certain states. The bankruptcy judge mayorder a number of procedures of which two mainly relate to private companies(chapter 7 and chapter 11):

❚ Chapter 7: a procedure for the liquidation of a company (issued lessfrequently than in France, but which nonetheless covered 61% of the 38,540US company bankruptcies in 2002). It comes into effect if the recovery planapproved under chapter 11 fails or if the Company files a plan to liquidate.❚ Chapter 11: Reorganisation: the objective is to turn the business around andavoid liquidation. A company may voluntarily adopt chapter 11 protection, forwhich it is not necessary to establish that the company has stopped paymentsor is insolvent. Just under 30% of insolvent companies (11,270) adoptedchapter 11 protection in 2002. Under this procedure the debtor may negotiatemore favourable terms with his creditors. The procedure may also be launchedby the creditors, in which case the debtor is entitled to be heard by the specialFederal "bankruptcy court" which decides if the debtor should be placedunder administration. Under chapter 11 the directors of a company retaincontrol, the company in difficulty is protected from its creditors (“automaticstay”) and any legal act or action is suspended.

The DIP (debtor in possession) or chapter 11 debtor retains possession of hisassets and business under the supervision of the judge; apart from certainexceptions, it is not placed under the “supervision” of a court-appointedadministrator who manages the company under the judge’s control, as occursunder French law.The directors are free to attempt to restructure the liabilities with the creditors,sell assets, negotiate reductions etc. The judge is only there to verifytransactions and avoid bias against other creditors. During the period whenthe company is under chapter 11 (initially 120 days during which the DIP hasthe exclusive right to file a plan of reorganization which usually is extended),there is considerable activity to restructure, sell assets or refinance thebusiness. The defaulting company itself must propose a recovery plan. Therecovery plan must be approved by the court, all the creditors and by theshareholders.❚ Chapter 12: Adjustment of debts of a Family Farmer with regular annualincome, is very similar to chapter 13. The farmer is authorised to pursue hisbusiness during the plan for repayment of his liabilities.❚ Chapter 13: Adjustment of debts of an Individual with Regular Income. Thisprocedure only relates to individuals with a regular income and is morefavourable to the debtor than chapter 7, since it allows him to keep certain realestate assets (house) and to offer creditors a repayment plan over 3 or 5 years.During the repayment plan, the debtor is protected against all legal actionsfrom creditors. ■

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(to end June 2003 • $1,105 = e )

Company name Latest annual turnover (e millions) Sector Date of failure Number of employees

Fleming Cos. Inc. 13 572.0 Groceries & Related Products 4/03 23 370

Healthsouth Corp. 4 071.6 Specialty outpatient clinics, nec 4/03 53 216

Spiegel Inc. 3 076.3 Catalog & mail-order houses 3/03 14 800

The Penn Traffic Co. 2 171.5 Grocery stores 5/03

Superior Telecom Inc. 1 854.0 Nonferrous wiredrawing & insulating 3/03 5 300

WestPoint Stevens Inc. 1 704.0 Broadwoven fabric mills, cotton 6/03 16 700

Magellan Health Services, Inc. 1 095.4 Psychiatric hospitals 3/03 12 800

Atlas Air Worldwide Holdings Inc. 1 085.7 Air transportation, scheduled 3/03

Acterna Corp. 1 056.6 Communications Equipment 5/03 4 973

Wickes Inc. 981.4 Lumber & other building materials 2/03 4 090

Source: Euler Hermes

Top 10 insolvencies in 2003

Annual average GDP and change in insolvencies

Sources: Datastream, Euler Hermes forecasts

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SOURCE and definition of statistics

The Administrative Office of Courts publishes figures for

business and non-business bankruptcies each quarter, giving

cumulative figures over twelve months, given that quarterly

figures are often revised. We use only the figures for business

bankruptcies, for which the Office provides a breakdown by type

and by State.

2002 2003

Q1 9,697 8,705Q2 9,603 9,237Q3 9,769Q4 9,471


Sources: Datastream /Administrative Office of Us Courts (quaterly series from cumulative quaterly series on 12months)

Sources: Datastream, Euler Hermes SFAC forecasts

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By contrast, the figures are better in theretail and wholesale sectors, and betterstill in manufacturing industry, wherethe fall in bankruptcies is down by morethan 20% year-on-year. The only areanot to improve is the services sector(excluding finance, transport, commu-nication and real estate), which ac-counts for 25% of businesses andwhere we find 15% of bankruptcies andover 30% of liabilities for the first ninemonths of 2003. Over two thirds of allbankruptcies are concentrated in threeof Japan’s nine regions: Kanto, Kinkiand Chubu.

2004 outlookJapan’s current economic rebound ishelping to improve business resultsand should facilitate an 8% drop inbankruptcies to around 17,600 in2003. With the Japanese economy verylikely to slow in 2004, bankruptciesshould stabilise, rising just 1% to17,700. ■

Trend in 2003After a decade that saw business fail-ures nearly double, to more than19,000 in 2001 and 2002, largely due tothe state of the economy, Japan hasseen a noticeable turnaround in bank-ruptcies since the fourth quarter of2002. Despite the harmful effects of theSARS epidemic in Asia and the war inIraq, September 2003 was the thir-teenth consecutive month with bank-ruptcies down (on a cumulative 12months year-on-year measure). For thefirst nine months of the year, bankrupt-cies were also down 13%, with a cumu-lative total of 12,641 (with liabilities ofmore than 9 trillion yen) out of a total ofmore than 6 million businesses in thecountry overall.

Sector analysisThe falling bankruptcy trend is less no-ticeable in construction, which remainsthe most highly stricken sector, ac-counting for 30% of all bankruptcies.

JapanLower risks

REGULATION

TOSAN is a Japanese term used broadly for not only corporate bankruptcy butalso for all kinds of decisions by court or agreements between a debtor and itscreditors on reorganisation or legal liquidation. There are five officialprocedures which arose following numerous legislative amendments andattempts to adapt the legislation to different situations depending on size andcomplexity. There is also a private procedure which aims to avoid the lengthytime and costs accompanying the official procedures.

Three procedures relate to liquidation:❚ HASAN, is a term introduced in 1872 to mean the liquidation of insolventbusinesses. It is currently a procedure provided in the Bankruptcy Law (HasanHo) enacted in 1922 based on the German legislation of 1877 and significantlyamended in 1952 with the incorporation of concepts taken from the USlegislation; it applies to all types of debtors (companies and individuals), andcould be filed either by the debtor or by one or more creditors, but the courtonly grants it to a debtor incapable of paying his creditors or whose assets areinsufficient to pay the liabilities.❚ TOKUBETSU SEISAN is a special liquidation procedure, which was

incorporated into the Commercial Code in 1938 (article 431). It is applied tocompanies which are already under some type of liquidation process.❚ NIN-I SEIRI, is a voluntary liquidation of a business without applying to a legalprocedure and without having a third party involvement. This “privateprocedure” is the most frequent.The other procedures relate to reorganisation and turnaround of a debtor:❚ KAISHA KOSEI is reserved for the reorganisation of joint stock companiesonly and governed by the Corporate Reorganization Law (Kaisha Kosei Ho)enacted in 1952 based on the American "Bankruptcy Act”. This procedure issuitable for large size corporations.❚ MINJI SAISEI is the first real debtor-in-possession type rehabilitationprocedure in Japan and became effective in April 2000 under CivilRehabilitation Law (Minji Saisei Ho) which introduces a procedure similar toChapter 11 under the US law: It applies to all types of debtors (companies andindividuals).❚ KAISHA SEIRI is a simplified procedure for reorganizing a business, whichwas incorporated to the Commercial Code in 1938 (article 381). This procedureis only available to corporations and is suitable for middle or small sizecorporations. ■

Insolvencies per sectorTotal 2003 to the end of August

Number %Construction 3,638 31.8%Manufacturing 1,955 17.1%Wholesale 1,972 17.3%Retail 1,258 11.0%Financial 49 0.4%Property 398 3.5%Transport/communication 454 4.0%Other services 1,636 14.3%Primary industry 69 0.6%Total 11,429 100%

Source: TSR

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(to end of September, 1 euro = 129 yen)

Company name Debt amount (e millions) Sector Date of failure Number of employees

Asahi Juken KK 2,790.7 Codominium developer 9/03 10

The Japan Golf Promotion Inc. 2,575.2 Golf course developer 2/03 1417

STT Development Ltd. 2,427.1 Management of hotel and ski resort 2/03 140

Japan Oil Development Co. Ltd. 2,384.5 Oil mining 3/03 160

Huis ten Bosch Co. Ltd. 1,774.4 Management of amusement park 2/03 1724

K.K. Aru Esu TI 1,646.5 Financial 4/03 2

Shoei Fudosan K.K. 1,153.5 Property 1/03 4

K.K. Leoma 1,080.6 Management of amusement park 4/03 6

Tokyowan Kanko K.K. 1,007.8 Golf course developer 8/03 N.A.

Ryokuei Kaihatsu K.K 938.0 Golf course developer 8/03 N.A.





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SOURCEand definition of statistics

Tokyo Shoko Research (TSR) calculates monthly figures for

the totality of business failures. The series that we employ

covers businesses with liabilities in excess of 10 million yen

that are subject to court-ordered reorganisation plans or

liquidations or else subject to private procedures.

2002 2003

January 1,543 1,444February 1,674 1,454March 1,741 1,560April 1,611 1,495May 1,730 1,452June 1,439 1,381July 1,718 1,377August 1,578 1,266September 1,467 1,212October 1,730November 1,435December 1,421


Sources: TSR, Datastream


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hardly been spared in this: bankrupt-cies in businesses that have been run-ning for more than eight years are in-creasing at twice the rate seen in thosethat have been running for a maximumof seven years.

2004 outlookAround 41,300 businesses failures arelikely to be logged for 2003 as a whole,a 10% increase on last year. This newrecord is likely to be exceeded in 2004,with a 4% increase to 43,000 businessfailures, with liabilities of the order of38 to 40 billion euros in 2003 and2004. ■

Trend in 2003Bankruptcy figures in Germany arebreaking all records, a developmentclosely linked to the lacklustre state ofthe German economy over the lastthree years. After more than tripling be-tween 1992 and 2002, bankruptciesrose 9% over the first half of 2003 (com-pared to the first half of 2002), withnearly 20,000 business failures overthe first six months.

Sector analysisThe only slight fall in bankruptcies hasbeen in construction. However, this sec-tor still accounts for more than one infive bankruptcies and the total of liabil-ities here continues to increase. Everyother major business sector is also see-ing an increase in liabilities. These arenot as high in industry and commerceas in services, where already nearly45% of bankruptcies and more than50% of liabilities are concentrated.Well-established companies have

Germany Record figures

REGULATION

On 1st December 2001 the reforms to the new Insolvency Code which has beenin place since 01.01.1999 came into force. The original rulings had led toproblems in practice, especially in the case of bankrupt small companies andself-employed persons who came under personal insolvency procedures. Oneimportant change is that such small businesses will no longer be subject tothe procedure for personal bankruptcy, but will once again go through thestandard insolvency procedure foreseen for companies. Exceptions to this rule will only be made under special circumstances. At firstsight, this ruling should lead to a statistical shift in favour of more corporateinsolvencies. In fact, however, it has no significant effect on the publishedfigures for corporate insolvencies, since the Federal Statistical Office hasalready adjusted the figures to reflect this shift since 1999.The reforms to the Insolvency Code will have a substantial impact on officialinsolvency statistics, especially on the number of private insolvencies

registered. The fact that a debtor can now file for insolvency proceedings on“mitigating conditions”, i.e., the registration threshold has been lowered by aconsiderable margin, plays a significant role here. The latter led tosubstantially more insolvency proceedings as from the beginning of 2002 thanwould have been the case under the old legal provisions.

Besides this, however, the statistical registration of corporate insolvencies willbe affected by new legal rules which particularly make it difficult to define theline of demarcation between insolvencies of private individuals and of smalltraders and self-employed persons. As of the beginning of 2002, this makescomparison of the corporate insolvency figures with those from precedingyears very difficult. ■

Insolvencies per sector

2002 2003*Manufacturing 4,344 4,800Construction 9,160 9,000Trade 7,491 8,500Service sector 15,959 18,300Other sectors 625 700Total 37,579 41,300

Sources: DeStatis, Euler Hermes forecasts* Euler Hermes forecasts

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(to end of September)

Company name Lastest turnover (e millions) Sector Date of failure Number of employees

Grundig AG 1,200 Consumer electronics 4/03 5,300

Emtec Magnetics GmbH 730 Multimedia recording technology 4/03 2,700

Eurobike AG 277 Motorcycle equipment 7/03 370

Witex AG 210 Wood industry 5/03 440

VGT Industrie AG 155 Machinery 5/03 1,050

Eduard Kettner GmbH & Co. KG 110 Hunting weapons, ammunition 5/03 750

Wienerwald AG 25 Food products 6/03 500


Top insolvencies in 2003



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40000

50000

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4130

0

873

0

8837 10

920 1514

8 1883

722

344

2553

027

474

2782

8

2823

532

278 37

579

2647

6

4300

0


Germany’s Federal Statistical Office (DeStatis) tallies all

declared bankruptcies for the country. The series that we

employ covers business failures (45% of total bankruptcies

in 2002). It excludes bankruptcies of individual persons and

those of individually owned businesses, for both of which

categories the statistical treatment has been altered by

bankruptcy law reform.

2002 2003

January 2,723 3,245February 2,991 3,106March 3,199 3,396April 3,344 3,610May 3,147 3,363June 2,879 3,233July 3,302August 3,310September 3,233October 3,250November 3,266December 2,934


Sources: DeStatis, Datastream


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when the annual growth rate returns toaround 1.8%. Thus we can expect bank-ruptcies to increase, at least in the firsthalf of 2004. However, based on ourforecast of 1.7% GDP growth in 2004,the pace of the increase should slow,with a figure of 46,100 collapses for theyear as a whole. ■

Sector analysisNo sector has escaped the increase inbankruptcies. Industry has beenparticularly hard hit, with collapses upby 14% over the first nine months of2003. Bankruptcies are also up 11% inconstruction and 11.5% in transport.Business services, severely affected in2002 – especially companies involvedin IT and communications – have faredsomewhat better this year, with failuresup by 4.5%. A quarter of all collapses isconcentrated in the Ile de Franceregion. However, we are seeing higherthan average increases in bankruptciesin traditionally industrial areas in thenorth and east of the country (forinstance, in the regions of Franche-Comté, the Alsace and Nord-Pas deCalais) as well as in Champagne andLoire regions.

2004 outlookIn the face of nearly zero economicgrowth in 2003 – at just around 0.2% –business failures should total some46,000 this year, an increase of 7%.Bankruptcy numbers will only stabilise

Trend 2003The weakness in the French economy ismaking it difficult for businesses thathave to further cut margins to counterthe erosion of their competitiveness.The increase in bankruptcies, now seenfor more than a year (with the total up2% in 2002), accelerated over the firstnine months of 2003. Over this sameperiod, some 34,815 businesses wentbankrupt, up 7.3% on the first ninemonths of 2002. Most of these failuresinvolved very small businesses, oftenless than five years old. However, therehas also been a big increase in col-lapses of small and medium-sized com-panies as well as large companies. Alsoin the first nine months of 2003, 115companies or groups with a latestknown turnover in excess of 15 millioneuros were the object of court-orderedreorganisation or liquidation proce-dures. This compares to 109 companiesor groups for the same period in 2002and 173 for the entire year. In the end,more than 16,000 jobs in these compa-nies are at risk from inevitable restruc-turing.

FranceIndustry and transport under pressure

REGULATION

Law of 1985 on bankruptcy proceedingsFrance’s Law of 1985 on bankruptcy proceedings has been amended by theLaw of June 1994, which strengthens procedures for the notification andamicable handling of difficulties encountered by a company prior toinsolvency. When insolvency is declared, the bankruptcy court pronounces either a judicialreorganisation procedure for those companies that offer a serious hope ofreorganisation, or else immediate judicial liquidation if the business hashalted all activity or if reorganisation of the company is impossible. In 90% ofcases, companies in difficulty end up in liquidation.❙ The judicial reorganisation procedure is open to any business whose liquidassets cannot meet its liabilities due. This procedure can be initiated by thedebtor, by one or more its creditors, or by the bankruptcy court. Anobservation period of 6 months, renewable a maximum of two times, isopened, during which the company continues to do business. This periodallows for the prospects and terms of reorganisation to be examined. The

observation period is terminated by a judgement which decrees areorganisation plan: either a continuation plan (with a debt relief period of 10years’ maximum duration) or a partial or complete takeover plan. French lawprovides for the cessation of actions against individuals (except in exceptionalcases), the suspension of the payment of debts prior to the opening of theprocedure and the optional continuation (at the discretion of the legaladministrator) of ongoing contracts, on which cash payment will be made.In France, it is the bankruptcy court that decides on the reorganisation planimposed on all creditors, whereas in most European countries, bankruptcycourts authorise an agreement voted by the creditors.❙ In the event of liquidation, the law sets out the order of priority of the variouscreditors.

A proposed reform of bankruptcy procedures is under study and is due to bepresented this autumn. From early indications, the proposals provide for theestablishment of an ‘anticipated judicial settlement’ (réglement judiciaireanticipé) – something along the lines of Chapter 11 in American law. ■

Insolvencies per sector9 months 2003

Number Annual Share ofchange in % sector

Manufacturing 4,233 13.9% 13%Construction 7,054 10.6% 22%Trade 7,877 4.1% 25%Property 1,156 4.7% 4%Hotels 3,284 9.5% 10%Transports 1,446 11.5% 5%Business Services 4,760 4.5% 15%Household Services 1,387 -2.7% 5%Total (incl. others) 34,815 +7.3% 100.0%



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Company name Latest turnover (e millions) Sector Date of failure Number of employees

Groupe Jean Lion 441 International food Wholesale 5/03 41

Groupe Air Lib 406 Air transportation , scheduled 2/03 3200

Metaleurop Nord 266 Non ferrous production 1/03 830

Groupe Daewoo Orion 233 Electronic components, electric appliances 1/03 550

Cybertech Distribution 219 Mobile phone wholesale 7/03 5

Air Littoral 215 Air transportation, scheduled 8/03 1000

Ets Jean Chereau 156 Motoring 2/03 735

Tati 149 Clothing retail 9/03 1200

Humaneo 146 Hardware wholesale 1/03 60

Champagne Bricout 124 Champagne 4/03 50





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959

503

648

9461

068

5454

3

4852

743

572

4203

642

897

4600

046

100

2002 2003

January 4,668 5,046February 3,199 4,786March 3,376 3,863April 3,498 4,245May 3,977 3,159June 4,261 3,711July 3,560 4,618August 3,367 3,229September 2,534 2,158October 3,925November 3,253December 3,279

Number of insolvenciesdate of official release in Bodacc


Since 1990, Euler Hermes SFAC has recorded bankruptcy

figures based on bankruptcy court judgements in France.

These figures reflect the number of judgements on the date

of publication of the official journal Bodacc, which publishes

announcements of these judgements and is used to obtain

breakdown figures by major sector and by region. A second

series initiated in 1994 identifies the biggest bankruptcies,

for entities with turnover in excess of 15 million euros.



14

wards the record highs seen in the early1990s, when an average of 60,000 fail-ures was recorded over 1992-1993 ■

Sector analysisInsolvency trends vary from sector tosector. Failures are down in retailing aswell as in industry, which was hit veryheavily in recent years. The insolvencyrate in construction is relatively steady.However, insolvencies are seeing a bigincrease in transport, communicationsand wholesaling, while the service sec-tor is suffering an explosive rise in busi-ness collapses.

2004 outlookWith the economy growing steadily by2% in 2003 and by 2.5% in 2004, bank-ruptcy rates should continue to slow,and individual bankruptcies shouldstabilise. However, with an increase of10% in 2003 and a further 5% rise in2004 to around 54,600 insolvencies,the total number will again move to-

Trend in 2003Despite the good resistance of the UKeconomy, insolvencies have been no-ticeably gathering pace since mid-2002, with over 24,300 cases in Eng-land and Wales in the first half of thisyear compared to 23,900 in the secondhalf of 2002, or a 7% increase over 12months. The bulk of this trend is due,however, to individually-owned busi-ness insolvencies (and especially re-quests for agreements with creditors),which are up by 7% on the first half ofthe year and represent two thirds of in-solvencies. Company bankruptcies, bycontrast, have been slowing steadilysince the start of the year, dropping by1% year-on-year at the end of June, hav-ing fallen by 8% over the first sixmonths of this year compared to thesame period in 2002. Something in ex-cess of 1% of all businesses is affected.

United Kingdom Business insolvencies are slowing

REGULATION

The Insolvency Act 1986, now updated by the Enterprise Act 2002, establishesseveral procedures for England and Wales:❚ The procedure concerning personal businesses is the Bankruptcy procedure.To avoid bankruptcy the debtor may offer his creditors an Individual VoluntaryArrangement. The Bankruptcy procedure can be initiated following a requestfrom a creditor, a debtor or if the voluntary arrangement is not accepted. Theadministrator (Trustee) may sell the debtor’s assets under the court’ssupervision and subject to the creditors committee. Bankrupts are nowautomatically discharged from bankruptcies after 1 year. The 2002 Act alsointroduced bankruptcy restrictions orders (BROs) and bankruptcy restrictionsundertakings (BRUs), which have replaced the criminal offences under ss.361and 362 of the 1986 Act.❚ There are several procedures for companies or legal entities in difficulty:The judge may issue an Administration order which is a procedure intended topreserve the business as a going concern managed by an administrator tomaximise payments to creditors. The administrator controls the debtor’sassets and has full power to manage the company. The purposes ofadministration have been stremlined into 1 universal purpose, with 3 tiers,with the emphasis heavily on rescuing the company. The administration ordermay lead to a Voluntary Arrangement between the creditors and the directorsof a business including a repayment plan the application of which is overseenby a supervisor or is performed under a Winding-up, which is the mostcommon procedure for companies.The liquidation may be established between the debtor and the creditors(Voluntary winding-up) or ordered by the court following a request from

creditors (Compulsory winding-up), although Administrators can now dissolvea company at the end of the administration without going through liquidation.An order of priority among the creditors is established for the allocation ofpayments. The Crown has now lost its status as a preferential creditor, subjectto certain exceptions. Where a floating charge is created after 15 September2003, the holder will have to ‘ring fence’ a percentage of the floating chargerealisations for the benefit of unsecured creditors. This ring fenced sum will be:• 50% of the first £10,000 of net property• 20% of net property thereafter. • up to a maximum amount of £600,000.The circumstance in which the holder of a floating charge, created after 15thSeptember 2003, can appoint an administrative receiver have been reduced.In addition, charge holders, companies and directors are able to appoint anadministrator without an application to court. Both these changes aredesigned to encourage the appointment of administrators rather thanadministrative receivers. The administrator has the power to do anythingnecessary for the management of the company.New time limits have also been introduced. Within 8 weeks of the start of theadministration, the administrator must make a statement setting outproposals for achieving the purpose of the administration. An initial creditors’meeting must be held within 10 weeks. The initial period for theadministration is 1 year.The new legislation, effective from 15 September 2003, will mean thatadministrations will in the future replace administrative receiverships as thepreferred rescue mechanism for distressed companies. ■

Companies Indiv.Agriculture and horticulture 0.3% 0.5%Manufacturing 16.0% 2.4%Construction 11.6% 6.7%Transport & communication 4.3% 4.4%Wholesaling 5.0% 0.4%Retailing 7.0% 4.2%Services 29.0% 8.5%Others 26.7% 8.8%Others individuals 64.0%Total 100% 100.0%

Source: DTI

Insolvencies per sectorcumulative 12 months,to end of March 2003

15


(to end of September; *excluding Northern Ireland, Channel Islands and Isle of Wight)

Company name Latest Turnover (GBP millions) Sector Date of failure

Powerhouse Realisation Group 319.1 Hardware 9/03

T W R Group Ltd 316.2 Vehicles 4/03

Keylane Investments Ltd 247.6 Business services 5/03

Amulet Group Ltd 243.1 Business services 6/03

Amitel Ltd 219.0 Metals & Engineering 7/03

MWB Business Exchange Europe Ltd 192.5 Business services 9/03

Cellar 5 Ltd 190.6 Food 1/03

AG (Manchester) Ltd 181.2 Business services 6/03

Euro Cellular (Distribution) Plc 173.1 Miscellaneous 5/03

Colorado Realisations (NO. 1) Ltd 143.2 Vehicles 5/03


Top 10 insolvencies in 2003 in the UK*



0

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2903

847

467 5

7411

4746

540

856

3973

437

051

3775

243

086

438

45

4474

7

468

92 5230

0

5460

0


Every quarter, National Statistics registers insolvencies of

all types for all of the UK. Our series takes in all company

and individual bankruptcies for England and Wales. It

excludes the figures for Scotland and Northern Ireland,

where legal procedures are different.

2002 2003

CompaniesQ1 4,014 3,672Q2 4,130 3,843Q3 3,882Q4 4,280IndividualsQ1 7,244 8,146Q2 7,596 8,662Q3 7,779Q4 7,967

Number of insolvenciesseasonally adjusted

Sources: DTI/Datastream


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Sector analysisOn the basis of 2001 figures, bankrupt-cies are far more numerous in com-merce, at 60% of the total, with indus-try at 35% and transport at 4%. Theconcentration of industry and the pres-ence of especially big companies in thenorth of Italy mean that this region un-derstandably leads the way with nearly40% of total bankruptcies, ahead of thesouth at 33% and the centre at 27%.

2004 outlookGiven the recession in the economy, thesituation of Italian businesses couldonly have worsened this year, and thenumber of bankruptcies and busi-nesses classed as being in difficultyhas risen. One can expect a 5% increasein the official bankruptcy figures to10,000 this year and in 2004, with theproviso that these numbers most cer-tainly underestimate the real trends. ■

Trend in 2003Latest available statistics from ISTATare for 2001, the only figure given beingfor fallimenti, i.e., business liquida-tions. According to the official figures,the trend since 1997 has been down-wards, both for the number of bank-ruptcies and for the bankruptcy rate(bankruptcies divided by the total num-ber of companies in the country). Thisimprovement on paper was helped by abig increase in new company creation,with the number of active companiesrising by 12.3% over this period. The of-ficial figures seem only partially to re-flect the problems of Italian busi-nesses, which suffer from paymentdelays that are longer than the Euro-pean average. Legal bankruptcy proce-dures in Italy are both lengthy and com-plex. Because of this, Italian companiesseem to rely more widely on a con-cordato preventivo – an amicablearrangement – or on private agree-ments with creditors in order to avoidbankruptcy. Such procedures do notenter into the statistics.

ItalyStatistical uncertainties

REGULATION

In the course of its business activity, an entrepreneur may experience thesituation of not being able to pay his debts. As that situation occurs the debtoris considered in a “state of insolvency”. A Debtor is legally insolvent when heis no longer able to fulfil his pecuniary obligations regularly (Art 5 of thebankruptcy law n° 267 of march 16 1942).When such a situation arises, it becomes necessary to ensure equal treatmentfor all the entrepreneur’s creditors. This is provided for in the Italian legalsystem by bankruptcy proceedings which purpose is to liquidate theentrepreneur’s assets and satisfy the creditors’ claims on an equal basis.

There are five types of bankruptcy proceedings:❚ Fallimento (bankruptcy with winding-down, characterised by a preliminarydeclaration of bankruptcy by the court and a final order of closing) is thestandard type of bankruptcy procedure and applies to commercial enterprisesin a state of insolvency.

❚ Liquidazione coatta amministrativa (compulsory administrative liquidation,reserved to companies of particular public significance) is applied to particularcategories of business of national importance, such as insurance companies,banks and securities investment companies. ❚ Concordato preventivo (settlement with all creditors, also supervised by thecourt, requiring total satisfaction of the preferential or senior creditors and atleast 40% satisfaction of the others) : debtor reaches agreement with hiscreditors without making recourse to the winding-down of the business.❚ Amministrazione controllata (supervised administration: the court, allowsthe business to continue, and lasts for a maximum of two years) is applied tobusinesses that are in a temporary state of crisis. Its purpose is not to liquidatethe assets but to allow them time to recover their financial health and pay theirdebts (the equivalent of US Chapter 11).❚ Amministrazione straordinaria (special administration, supervised by theMinistry for Industry and pertaining only to very large companies) is applied tolarge businesses that are in a state of crisis. Its aim is to satisfy the creditorswhile safeguarding the business and jobs. ■

Insolvencies per sectoryear 2001sector share of total, %

2001Agriculture 0.6%Manufacturing 34.7%Trade 59.4%Transport &Telecom 3.8%Financial sector (banking, insurance) 1.4%Total 100%

Source: Istat


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(to end of September, companies under a “procedura concorsuale”)

Company name Latest turnover (e millions) Sector Number of employees

Coop. Costruttori Scarl 356 Construction 1600

Cirio del Monte Italia SPA 248 Food process 400

Giacomelli Sport SPA 199 Sports Clothing 1600

Longoni Sport SPA 123 Sports Clothing 560

International Piping SPA in Liq. 31 Steel 450

Opengate SPA in AC 21 Electronics 150


Top insolvencies in 2003


Source: Datastream, Euler Hermes forecasts

0

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1000

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872

1 9891

9916

1198

8

1311

5

1601

616

061

148

9313

740

1217

8

1164

110

767


ISTAT publishes annual business bankruptcy figures

broken down by major sectors, with a two-year delay.

The last available figures are for 2001, and the figures

given for 2002 are Euler Hermes estimates.

Annual data

1995 16,0161996 16,0611997 14,8931998 13,7401999 12,1782000 11,6412001 10,7672002 10,000


Source: Istat


18

legislation, due to enter into force inSeptember 2004, could for a time cre-ate difficulties in processing and mon-itoring bankruptcy data. ■

Sector analysisThe bulk of bankruptcies concern lim-ited companies (70%) and public lim-ited companies (25%). Generally, themajor causes of these bankruptcies areliquidity failure (56% of cases) and di-minished sales. This is especially truein industry, which in the first half of2003 accounted for more than a third ofbankruptcies as well as for the biggestincrease in bankruptcies (by 20%).Next are services with a 16% increase,and construction with a 10% rise. Bycontrast, commerce has performed farbetter, with bankruptcies in the firsthalf of the year down 15% against thefirst half of 2002.

2004 outlookThe Spanish economy should againsee annual growth of 3% in 2004. Allsectors should benefit from this duringthe year, and real rates of interestshould remain favourable for busi-nesses. In this context, the number ofbankruptcies, which could increase bya rate of 15% to over 1000 this year,should see a net slowing in 2004 to arate of 5%. The reform of bankruptcy

Trend in 2003After a 16% increase in insolvencies(quiebras and suspensiones de pago)in 2002, the trend continued in the firsthalf of 2003, with the number of cases(470) higher than the figure (435) forthe first half of 2002, although the rateof increase was lower at 8%. This over-all trend is due basically to the strongrise in liquidations (quiebras, up 13% to294). These represent nearly two thirdsof insolvencies. Payment suspensions(suspensiones de pago) have been sta-ble.Cumulative debt from bankrupt busi-nesses, which totalled 2.15 billion eu-ros in 2002, equalled 770 million eurosfor the first half of 2003, according topreliminary INE estimates, half the to-tal of the first half of 2002. Debts on thepart of the increased number of liqui-dations are up sharply, by 40%, andrepresent more than half the cumula-tive total, whereas debts of companieswith payment suspensions have fallenby half.The Barcelona and Madrid regions ac-count for a third of bankruptcies andhalf of declared debts.

SpainInsolvencies up despite sustained growth

REGULATION

There have been two procedures in Spain since the Act dated 29 August 1923as amended for the last time on 1 January 1993; these cover both privatebusinesses (individual traders) and companies that are a separate legal entitysuch as “sociedades anonimas” and “sociedades de responsabilidadlimitada”.

❚ “Suspension de pagos” (suspension of payment) must enable debtorsunable to meet their liabilities to establish an agreement with a majority ofcreditors (reduction of amounts due and/or changes to payment terms) inorder to continue the business and avoid liquidation. The judge appointsadministrators whose mission is to oversee the management of the companyin default: they prepare a list of creditors, prepare a statement of assets,analyse the causes of the company’s insolvency focusing on its ability tocontinue as a going concern, and submit a recovery plan to the creditors.

❚ However, a “Quiebra” (bankruptcy) is pronounced if it is established that thedebtor is in a situation of "general payment default", which leads to theliquidation of all the entity’s assets and payment to creditors in their order ofpriority.

In June 2003, a new insolvency law was approved by the parliament and willbecome applicable from september 2004. All insolvency proceedings will start with a bankruptcy process (Proceso Concursal) and achieve either in acreditors arrangement (Convenio) or a liquidation. New mercantile Courts willbe established and it is expected that the new proceedings will be carried outearlier improving the possibility of reorganising the business. ■

Insolvencies per sector1st half 2003

Susp. Quiebras Totalde pagos

Agriculture 1% 2% 2%Manufacturing 42% 32% 36%Construction 11% 21% 17%Trade 23% 20% 21%Services & real estate 23% 24% 24%

Source: INE


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Susp. de pago Quiebras Total

Q1-2002 68 112 180Q2-2002 106 149 255Q3-2002 73 121 194Q4-2002 91 160 251Q1-2003 80 144 224Q2-2003 96 150 246Q3-2003Q4-2003


Source: INE

19



Company name Latest turnover (e millions) Sector Date of failure (quiebra) Number of employees

Fidame Invest Sl 28.8 Office equipment wholesale 4/2003 33

Pescados Fitemar SL (Disuelta) 16.7 Fish trade 7/2003 6

Barcelona Centre de Tecnologies SA 10.6 Engineering 7/2003 163

Rodisur SL 10.4 Construction 1/2003 40

Egarense de Componentes Metalicos SL 10.2 Mechanicals 3/2003 186

Union Y Proyectos SL 9.4 Services 5/2003 38

Retrofitadora Guipuzcoana SA 8.3 Machine-tools 3/2003 90

Publiguia 2001 SL 7.5 Advertising 2/2003 38

Urdicentro Expres SL 6.9 Transports 4/2003 60

Eurocable 2000 SL (Disuelta) 6.3 Business services 7/2003 18





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828

1666

1345

1362

1135

896

774

759

88

0 1000 1

100


Spain’s Instituto Nacional de Estadística (INE) publishes

quarterly figures on payment suspensions and liquidations,

along with a breakdown by sector, region, and the amount

of liabilities of bankrupt companies.


20

and 40% in the hotel-restaurant sector.It is most pronounced in four of thecountry’s twelve provinces, where twothirds of the economy is concentrated:South Holland, North Brabant, NorthHolland and Gelderland.

2004 outlookEconomic recovery threatens to be slowand difficult, with the number of insol-vencies likely to increase by more than25% this year to a record of over 6,300.Next year, the figure should increase bya further 15% to a new record of 7,100.This compares to 5,500 in 1993, the lastlow point in Dutch economic growth. ■

Trend in 2003 After slowing in 2002, the rate ofgrowth in insolvencies has increasedthis year in the Netherlands. This re-sults from a particularly bad first half ofthe year for the economy, as the coun-try of the Polder model saw over 3,700businesses go bankrupt up to the endof July, out of a total of some 720,000businesses in Holland overall. Thistranslates into a 28% increase againstthe same period in 2002. Of the bank-ruptcies, 20% were for individuallyowned businesses and 80% for compa-nies. Most of the company failures con-cerned firms with less than 10 employ-ees, a category accounting for 90% ofDutch businesses.

Sector analysisThe increase in bankruptcies has notspared any of Holland’s business sec-tors. The year-on-year increase hasbeen 15% in industry, 25% in construc-tion, transport, warehousing, commu-nications and financial intermediation,

NetherlandsStrong acceleration in insolvencies

REGULATION

Company insolvency falls under the Act dated 30 September 1893(faillissementswet) which is inextricably linked to Professor Molengraaf.This law took effect in September 1896. Applicable to all individualbusinesses and legal entities, it consists of two chapters: bankruptcy(faillissement) and legal moratorium (Surseance Van Betaling for thesuspension of payments). Both these collective procedures take placeafter the commercial chamber of the civil court (notified either by thedebtor, one or more creditors, or by public authorities) has establishedthat the debtor has ceased payments (the debtor being “apparentlyunable to meet his liabilities”).

The procedure is above all designed to enable recovery of businesses intemporary financial difficulty via a recovery plan which must be approvedby the court and offered to the creditors, who may accept (with 2/3 of the

votes representing 3/4 of total liabilities) or reject it. However, theprocedure results in the liquidation of “unrecoverable” businesses(liabilities too high, poor chances of survival, etc.). Experience has shownthat more than 95% of Dutch businesses under legal moratorium end upin liquidation.

This law was lastly amended on the 1st of Septembre 1998 when a newtitle was added – concerning Debt Rescheduling Natural Persons (WetSchuldsanering Natuurlijke Personen ). This law is also applicable forsole traders. It’s a three year moratorium during which the debtor has toput in as many assets as possible to pay outstanding debts. As far as soletraders are involved also this law can be applicable as an insolvency.Background of this law is of course to have in the end more”survivals” fornatural persons. ■

Insolvencies per sectorTotal 2003 (to the end of July)

Number %Agriculture, hunting, fishing, forestry 77 2.1%Manufacturing, mining and quarrying 469 12.6%Construction 562 15.1%Trade, repair of consumer goods 751 20.2%Hotels and restaurants 156 4.2%Transport, storage and communications 234 6.3%Financial intermediation 1,307 35.1%Education and others 148 4.0%Total 3,720 100.0%

Source: CBS

21



Company name Latest turnover (e millions) Sector Date of failure Number of employees

Storteboom Groep 500 Agriculture / poultry 5/03 1,050

Netagco Holding BV 283 Agriculture / machines 4/03 115

Brada's Vleeschbedrijf 132 Meat production 8/03 200

Zeevisgroothandel Noordzee (breskens) Bv 80 Agriculture / fish 7/03 45

Van Heek-Tweka NV 48 Clothing 7/03 998

Stronghold Paper Group BV 46 Paper 8/03 193

Aannemingsbedrijf Simon Benus 30.7 Construction 7/03 120

Transportbedrijf Broersma 27.1 Transport 5/03 280

De Tille Scheepsbouw 25. Shipyard 8/03 85

PMB-UVA Group BV 20.6 Manufacturing 5/03 110

Horn Keuken en Bad BV nd Kitchen and sanitairy ware 6/03 150

Emmein BV nd Furniture 1/03 106

Loon- grondtransportbedrijf Noppert nd Transport 5/03 100





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8000

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7200

6300

4963

4330

3579

3238

40154

409

453447

835

333

5512


Holland’s Centraal Bureau voor de Statistiek (CBS)

registers all declared bankruptcies across all business

sectors. Our series takes in business failures: companies,

individually owned businesses and partnerships. These

account for 75% of bankruptcies. We exclude personal

bankruptcies, which account for the remaining 25%.

2002 2003

January 446 478February 375 474March 392 473April 357 617May 398 567June 413 546July 530 565August 356September 401October 529November 373December 393


Sources: CBS, Datastream


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22

2004 outlookWith GDP growth of less than 1% in2003, bankruptcies this year shouldrise by 5% to more than 7,500. Thenumber should increase further in2004, to 7,800, although the pace of in-crease will slow to 3.3%. Only when theannualised growth rate rises to morethan 1.7% can we expect the number ofbankruptcies to stabilise. ■

Sector analysisA third of the country’s insolvencieshave been in the commerce sector.Around a quarter have come in servicesand transport, which have seen thebiggest increases in bankruptcies com-pared to last year. Industry accounts forless than 10% of the total, but it is inthis sector that the most significant col-lapses have occurred. Over the firstnine months of 2003, of the twentybankruptcies involving companies withturnovers in excess of 8 million euros,three involved enterprises withturnover greater than 50 million euros.These were Sofinal-Cotesa (textiles),Huron Valley (non-ferrous metals) andFardis (packaging). The Flemish-speak-ing part of the country has been hard-est hit, with 55% of bankruptcies, with30% occurring in French-speaking Bel-gium and 15% in the Brussels region.

Trend in 2003Due to the net slowdown in the Belgianeconomy, more businesses have falleninto difficulty, insolvencies have in-creased for the third year running, andthe rate of increase has even risen in2003. Over the first three quarters ofthe year, 5,521 bankruptcies and 69continuation agreements (concordats)were pronounced by the courts, up 6%against the same period in 2002.Twelve-month figures to the end of Sep-tember 2003 were up 5% to 7,500, thehighest figure since 1997. For the mostpart, these bankruptcies concern verysmall companies, over 80% of thememploying less than five persons. Lim-ited liability companies (SPRLs) ac-count for 56% of the total, public lim-ited companies (SAs) a further 21% andindependents 18%. However, the im-pact on employment has been consid-erable, and nearly 16,900 jobs havebeen lost.

BelgiumThe increase continues

❚ The Act dated 17 July 1997 relating to “concordat judiciaire” (legalarrangement), however, is intended to enable the bankruptcy of a trader actingin good faith to be avoided who “temporarily cannot meet his liabilities andwhose business is threatened by difficulties liable to lead to a suspension inpayments within a more or less short period of time”. The request for a legalarrangement comes either from the debtor or a decree of the King following“examens d'office”, i.e. “commercial enquiries” undertaken by the commercialcourts on all debtors incurring difficulties identified from certain informationincluding that collected every quarter from the National social security office orthe financial authorities. The court establishes either the rejection of therequest without recourse, or immediate bankruptcy, or a legal arrangement:the latter gives legal protection to the debtor from his creditors for anobservation period of a maximum of six months (unless the court extends thisperiod) and gives the right to a “temporary suspension” during which arecovery plan must be approved by a majority of creditors and by the court witha view to a “final suspension” which can last up to 24 or 36 months. ■

Insolvencies per sectorcumulative 12 months to end of August 2003

Shareof sector

Agriculture 1%Manufacturing 8%Construction 13%Trade 32%Hotels 16%Transports and services 25%Others 5%Total 100%


REGULATION

❚ “Faillite” (Bankruptcy) concerns “any business that has consistently stoppedpayment and whose credit is fragile”; it is defined in the Act dated 8 August1997 (effective from 1 January 1998) which cancels and replaces the Actconcerning insolvencies, bankruptcies and payment deferrals dated 18 April1851, and establishes a procedure for the liquidation of a company: datepayments ceased, appointment of administrators, verification of all debtors,statement of assets of the bankrupt party, temporary partial or totalcontinuance of trading, etc. Bankruptcies are pronounced by the commercialcourt with jurisdiction for the business largely based on the statement of thetrader to the court registry (in the month when payments ceased) or onstatements from one or more creditors or from the government ministry. Bankruptcies are performed either according to the “short procedure” (oncethe minutes of the debtors verification have been finalised) if the bankruptcy isnot contested or if the assets value is not material, or according to the “longprocedure” if the bankruptcy is liable to prejudice the rights of the bankruptparty or his creditors; the process must be completed within three yearsfollowing the court decision declaring the bankruptcy, with a court decision onany “reason to excuse” the bankrupt party, which could cancel any liabilitiesarising from the bankruptcy.


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5

10

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GDP (left axis)

04020098969492

Annual change, in %

6

5

4

3

2

1

0

-1

-2

2002 2003

January 630 608February 583 651March 678 691April 552 627May 619 634June 679 703July 421 475August 307 337September 754 795October 690November 644December 643


Sources: INS/Datastream

23



Name of company Latest turnover (e millions) Sector Date of failure Number of employees

Huron Valley Europe 57.1 Nonferrous 5/03 76

Sofinal-Cotesa 50.7 Textile 1/03 273

Fardis 50.2 Packaging 7/03 208

Claes Gebrs. 41.9 Construction 2/03 161

Brepols Graphic 37.3 Printing 1/03 455

Keulders Intl 26.5 Transport 9/03 144

Arrow G & F 25.0 Temporary employment agency 4/03 666

Yorkshire Europe 23.8 Chemicals 5/03 125

Aegis 22.3 Packaging 9/03 119

Maxim Medical Belgium 22.1 Medical gloves 2/03 159





6000

7000

8000

04020098969492


6135

7800

7600

7200

7062

6791

7163

6924

7751

7539

7136

6472


Belgium’s Institut National de la Statistique (INS)

publishes figures each month on declared business

bankruptcies. These figures are broken down by major

sector, by the party’s legal status (bankruptcies of

individual entrepreneurs, cooperatives, public limited

companies and limited liability companies), and by region.


24

2004 outlookThe expected downturn in Danishgrowth at the end of 2003 should slowthe fall in bankruptcies. The total for2003 could therefore be slightly in ex-cess of 2,400 units, a drop of 2%against 2002. In 2004, bankruptciesshould fall by 3%, helped by recovery inthe economy. ■

Trend in 2003After rising significantly in 2001, bank-ruptcies in Denmark stabilised in 2002and have shown a noticeable decreasesince the start of 2003. The cumulativetotal over 12 months is down 6% to2,412, out of a total of some 225,000genuinely active companies (and ex-cluding the 50,000 companies in Den-mark’s agricultural sector).

Sector analysisApart from agriculture, the falling bank-ruptcy trend is especially noticeable inmanufacturing industry, constructionand wholesaling. These sectors ac-count for a quarter of Danish compa-nies and more than 35% of bankrupt-cies over the first nine months of thisyear. But the situation is hardly any lessfavourable in the retail trade, hotel-restaurant sectors and in transport andcommunications: in those sectors, cu-mulative bankruptcies are only up byaround 2% over twelve months. Jutlandand the Copenhagen region each ac-count for over 40% of bankruptcies.

DenmarkImprovement underway

REGULATION

There are three procedures relating to bankruptcy:❚ “Betalingsstandsning”: i.e. suspension of payments to avoid bankruptcywhile protecting creditors. During the payment suspension period the debtorcompany attempts to find ways to continue as a going concern and isprotected from all legal actions from its creditors; a date is fixed to separatetransactions and important decisions prior to the payment suspension. If thebusiness cannot continue as a going concern, the payment suspension date isestablished as the date when the bankruptcy takes effect. During the paymentsuspension creditors have no influence on proceedings.❚ “Akkord”: Arrangement or agreement between the creditors and the debtorto avoid bankruptcy and continue the business in difficulty as a going concernby an agreement signed between both parties regarding the amount ofliabilities due to creditors. A deadline is established and the arrangementtakes effect for all creditors who are treated equally.

❚ “Konkurs”: bankruptcy may be declared by the debtor company or by acreditor. According to the Danish Bankruptcy Act (Konkursloven), thisprocedure ends with the liquidation of the debtor business; an administrator isappointed by the creditors who takes control of the company with a view toselling the assets at the highest possible price and paying over the fundsraised to creditors in their order of priority. ■

Insolvencies per sectorTotal 2003 to the end of September

Number %Agriculture, fishing and quarrying 34 1.9%Manufacturing 205 11.4%Construction 243 13.5%Wholesale trade 195 10.8%Retail trade 159 8.8%Hotels and restaurants 94 5.2%Transport, postal services and telecommunications 120 6.7%Financial intermediation etc., business activities 381 21.2%Public and personal services 73 4.1%Activity not known 295 16.4%Total 1,799 100.0%

Source: DST

25




1500

2000

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4000

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2652

2734 2

895

3509

2900

2259

1763

1759

1652

1636 17

7023

29 2400

240024

69


Our series draws on figures from Danmarks Statistik

(DST). Each month, in the Danish Official Gazette, the

DST lists the totality of declared business bankruptcies

by activity and region for the whole of Denmark (exclud-

ing the Faeroe Islands and Greenland).

2002 2003



Sources: DST, Datastream


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26

higher than average bankruptcies havebeen seen in the hotel-restaurant sec-tor, wholesaling, transport, postal serv-ices and telecoms, each showing morethan an 11% increase. The worst hit sec-tor, however, has been construction,where bankruptcies are up by 35%.More than a third of bankruptcies are inthe Stockholm region, with more than aquarter occurring in two of Sweden’stwenty other regions, namely VästraGötalands and Skäne.

2004 outlookAlthough business insolvencies are farfrom their 1992 peak of 20,000, the fig-ure should increase by around 5% for2003 as a whole, given the noticeableslowing in the Swedish economy. A veryprogressive upturn in growth is ex-pected for 2004, which should bring arelative steadying in business insol-vencies to around 8,600 companies an-nually. ■

Trend in 2003From a low of 6,600 in 1999, Swedenhas gone on to see a continued in-crease in insolvencies. After a 7% in-crease in 2002 and a particularly diffi-cult first half of 2003, when the numberof insolvencies was 15% higher thanthe corresponding period a year earlier,the figures rose a further 8% over thetwelve months to the end of September2003. Of the 6,400 insolvencies in thefirst nine months of the year, 5% wereaccounted for by individual entrepre-neurs and 95% by businesses, of whichmore than 70% were limited companies(which make up only 28% of Sweden’s847,000 businesses). However, reflect-ing well on an economy made up mostlyof small and medium-sized companies,less than one bankruptcy in ten in-volved companies with more than tenemployees.

Sector analysisComparing the first nine months of2003 and 2002, the only sectors to es-cape the increase in business insolven-cies have been finance, automobiles, ITand especially retailing. By contrast,

SwedenServices and construction in difficulty

REGULATION

❚ Konkurs is the term used for bankruptcy. A business may be declaredbankrupt due to insolvency if it cannot meet its liabilities to creditors. Thecompany is not insolvent if the funds and assets are sufficient to repay thecreditors.❚ Företagsrekonstruktion is the term for a public business reorganisation. Theprocedure is stated in the law and influenced by the US Chapter 11. Theprocedure is started by a petition to court for reorganisation of the business,made by either the debtor or a creditor. A administrator (rekonstruktör) isappointed to examine the debtor´s financial situation. The application willinclude at recent balance sheet, an explanation of the reason for theinsolvency and a brief description of the reorganisation proposal. Thereorganisation always includes a proposal. If this proposal not is accepted by

all creditors, the debtor may apply to the court, requesting that publiccomposition proceedings begin. A reorganisation procedure may take up toone year, but mostly ends already after four months.❚ Legal arrangement (offentligt accord) can first be decided under a publicbusiness reorganisation procedure. Agreement between the creditors(underhandsackord) and the debtor to avoid bankruptcy and continue thebusiness in difficulty as a going concern by an agreement signed betweenboth parties regarding the amount of liabilities due to creditors. A deadline is established and the arrangement takes effect for all creditors who aretreated equally. To avoid bankruptcy the dividend to the creditors has to be atleast 25%. ■

Insolvencies per sectorTotal 2003 to the end of September

Number %Agriculture 106 1.7%Manufacturing 596 9.3%Construction 671 10.5%Vehicle 184 2.9%Wholesale trade 532 8.3%Retail trade 573 8.9%Hotels and restaurants 308 4.8%Transport, postal services and telecommunications 292 4.6%Financial intermediation 68 1.1%Property 161 2.5%Others services 1,479 23.1%Miscellaneous 1,442 22.5%Total 6,412 100.0%

Source: SCB

27


(to end of September, 1 e = 8.2 SEK)

Company name Latest turnover (e millions) Sector

Jomed I Helsingborg International AB 47.9 Production medical equipment

Svenska Rayon AB 43.3 Chemical industry

AUA Vveckling AB 34.5 Consulting

Flexihus AB 30.1 Production of family houses

Windsor Communications AB 27.2 Distributor IT related products

Unitimber AB 23.6 Trading - woodproducts

Scana Ramnäs AB 21.7 Mechanical industry

Komsa Nordic AB 20.4 IT distributor

Galodin AB 18.1 Trading - electronic goods

AB P A Carlmark 17.6 Trading - goods for fishery industry





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9000

12000

15000

04020098969492


1461

1

1162

311

313

1043

68

855

6645

6733 7

433 79

30 830

08

600


Statistics Sweden (Statistika Centralbyran – SCB) gathers

figures for bankruptcies of all types occurring each month, by

region, legal category, sector and number of employees. The

figures we use cover the totality of business bankruptcies

(for companies, individually owned businesses and

individual entrepreneurs) but exclude personal

bankruptcies, which generally account for less than 5% of

total bankruptcies.

2002 2003



Sources: SCB, Datastream


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28

Sector analysisAccording to figures for the end of June2003 (the latest available) and with theexception of agricultural sectors, trans-port and retailing were the least af-fected by the rise in insolvencies. By contrast, the hotel-restaurant and man-ufacturing sectors each saw a cumula-tive increase in insolvencies over 12months of more than a 47%, with an in-crease of 56% in wholesaling. Theworst affected sector, however, wasconstruction, which accounts for nearlyone in ten Norwegian companies, witha 60% rise in insolvencies.

2004 outlookThe continued worsening expected inthe Norwegian economy will do little tostem the current trend. The previous1992 record of 5,700 insolvenciesseems likely to be broken, with a 25%increase to around 5,600 this year anda further 4% rise in 2004 to 5,800. ■

Trend in 2003In close correlation with the almostcontinuous slowdown in economicgrowth since mid-2000, Norway hasseen a striking increase in insolvencies.Since May 2003, monthly insolvencieshave boosted the cumulative total overtwelve months to a ten-year high ofmore than 5,000. Overall, more than3,500 insolvencies were recorded overthe first eight months of 2003, an in-crease of more than 25% against thesame period in previous year and ofmore than 30% cumulatively overtwelve months. The country as a wholehas around 430,000 businesses, ofwhich 19% are in agriculture, forestryand fisheries. Personal bankruptcies,of which individual entrepreneurs ac-count for some two thirds, rose 45%over the first six months of the year,while company bankruptcies were upby 19%; all these bankruptcies repre-sent a turnover of 9.2 billion Norwegiankroner.

NorwayUpsurge in insolvencies

REGULATION

❚ Betalingsstansning: i.e. suspension of payments to avoid bankruptcy whileprotecting creditors. During the payment suspension period the debtorcompany attempts to find ways to continue as a going concern and isprotected from all legal actions from its creditors; a date is fixed to separatetransactions and important decisions prior to the payment suspension. If thebusiness cannot continue as a going concern, the payment suspension date isestablished as the date when the bankruptcy takes effect. During the paymentsuspension creditors have no influence on proceedings.

❚ Konkurs: is the term used for bankruptcy. A business may be declaredbankrupt due to insolvency if it cannot meet its liabilities to creditors. Thecompany is not insolvent if the funds and assets are sufficient to repay thecreditors. The business can be declared bankrupt both by the creditors and bythe business itself (oppbud).

❚ “Tvangsopplosning”: is the term meaning a liquidation ordered by the courtif the business cannot meet its formal obligations.

❚ Akkord: Legal arrangement (tvangsakkord) or agreement between thecreditors (frivillig akkord) and the debtor to avoid bankruptcy and continuethe business in difficulty as a going concern by an agreement signed betweenboth parties regarding the amount of liabilities due to creditors. A deadline is established and the arrangement takes effect for all creditors who aretreated equally. To avoid bankruptcy the dividend to the creditors has to be atleast 25%. ■

Insolvencies per sectorTotal 2003 (to the end of June)

Number %Agriculture, fishing and quarrying 84 3.0%Manufacturing 214 7.6%Construction 487 17.3%Vehicle 98 3.5%Wholesale trade 198 7.1%Retail trade 397 14.1%Hotels and restaurants 258 9.2%Transport, postal services and telecommunications 252 9.0%Others services 500 17.8%Miscelleaneous 319 11.4%Total 2,807 100.0%

Source: SSB


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(to end of August, 1 e = 8,2 NOK)

Company name Latest turnover (e millions) Sector

Cinet AS 21.69 PC production

Bâtsfjord Fiske-Eksport AS 19.32 Fishery

Union Pigments AS 6.69 Chemical industry

Flexihus AS 6.25 Construction

Laline AS 6.22 Ship broker

Nordic Sea Mehamn AS 5.88 Fishery

Autosenteret AS 4.30 Retailing

Vest-Tel Maskin AS 3.60 Manufactoring

Linge Bygg AS 3.55 Construction

Reiseservice AS 3.51 Services





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8000

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3814

4926

5749

5158

3634

3500

3458

3333

3347

3243 35

76

3562

4473

5600 58

00


Statistics Norway (Statistik Sentralbyra – SSB) publishes

figures on bankruptcies of all types occurring each month,

by region, legal category, sector, turnover and number of

employees, drawn from the Register of Bankruptcies in

Bronnoysund and the Value Tax Registration List. The figures

we use cover all business bankruptcies and personal (indi-

vidual entrepreneur and employee) bankruptcies.

2002 2003

January 315 390February 365 480March 298 530April 411 461May 378 487June 407 459July 309 349August 323 367September 401October 473November 446December 347


Sources: SSB, Datastream

Country Company Latest turnover (e m) Date of failure Sector


30

Major insolvencies worldwideFrom the 10 biggest business failures in selected countries: USA, Germany, France, United Kingdom, Italy, Spain, Netherlands, Belgium, Norway and Sweden. (to September 2003)

Exchange

ook outl · 2010. 9. 8. · grundig ag 1,200 consumer electronics ger 4/03 5,300 ... so different...

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