More than 10,000 bankruptcies in 2011

A record number of bankruptcies were registered in Belgium in 2011 and more than 10,000 businesses closed down. Almost twice as many businesses went bankrupt in the Flemish-speaking region of Flanders than in the French-speaking Wallonia region, and the commerce and services sector was the hardest hit. There was a growing tendency in the business community to delay payments to other businesses as long as possible, pushing traders operating on low profit margins into insolvency.

Causes of record insolvency figures

More than 10,000 bankruptcies were published in the Belgian Official Journal in 2011. The consultancy firm Graydon, a leader in commercial and marketing information and credit and debt management in Belgium, has identified a number of causes for the collapse of businesses.

Many companies who went bankrupt in 2011 already had structural issues before the 2008 financial crisis and were not operating with a sufficient profit margin. The economic climate also made it harder to maintain stock levels and capital.

Another significant problem seems to be a lack of respect for payment terms. Graydon suggests that businesses are becoming less and less likely to pay other businesses on time, which echoes previous surveys from the consultancy that show more than one in four bankruptcies are due to bad debts.

In addition, the current study points to other causes of bankruptcy in Belgium:

• a gradual increase in the creation of low quality companies;

• the rising cost of raw materials and falling purchasing power;

• the soaring prices of providers in some sensitive markets;

• weak solvency due to an increasing need to take out short-term loans;

• the unexpected number of companies that apply the ‘companies’ continuity law’.

The ‘companies’ continuity law’ is quite recent, although the first version was concluded in 1997. It was revised last year. If a business is in difficulties but recovery is achievable, the management can ask for a judiciary agreement granting a delay before bankruptcy is declared. A mediator can be appointed and an agreement negotiated between the company and its creditors without intervention from the court. A recovery plan is then formulated. However, during the crisis it was seen that this law could lead to a chain reaction, particularly among smaller firms.

All sectors affected

Statistics from the Federal Public Service of Economy, SMEs, Self-employed workers and Energy, available in a press release (in French, 224Kb PDF), reflect the bankruptcy situation for all types of companies. Differences can be seen between sectors and between Belgium’s linguistic areas. Even though the sectoral breakdown of the statistics for 2011 is not available yet, it seems likely that the figures for 2010 (9570 bankruptcies.

Tables 1 and 2 show some of these statistics.

Table 1: Bankruptcies by sector, 2010

	Bankruptcies	Jobs lost	Average number of jobs lost per bankruptcy
Agriculture	94	298	3.2
Industry	568	3602	6.3
Building	1560	5662	3.6
Commerce	2649	4019	1.5
Horeca	1788	3202	1.8
Services	2853	6798	2.4
Others	58	33	0.6

Source: Federal Public Service of Economy, SMEs, Self-employed workers and Energy

Table 2: Bankruptcies according to linguistic area, 2010

.	Bankruptcies	Jobs lost	Average number of jobs lost per bankruptcy
Belgium	9570	23614	2.5
Flanders	4918	11224	2.3
Wallonia	2737	8697	3.2
Brussels	1915	3693	1.9

Source: Federal Public Service of Economy, SMEs, Self-employed workers and Energy

The commerce and services sectors were worst affected. Nevertheless, company failures in the industry sector generally lead to the loss of more jobs per insolvent company. The figures show that there were more bankruptcies in Flanders than in the others parts of Belgium. This might be explained by the fact that Flanders’ economy has a larger industrial base, with the result that more jobs were lost in the region when the economy ran into difficulty.

However, the overall ratio of jobs lost to company failures is higher in Wallonia.

Nevertheless, all of these figures should be considered in the context of the size of the companies declaring bankruptcy. We can see from Figure 1 that small and medium sized companies are more affected than larger companies.

Figure 1: Number of jobs lost compared to company size

Source: SPF Economie

Figure 2: Average number of job losses per bankruptcy, by size of company

Source: SPF Economie

Unions blame employers

Belgian unions argue that the authorities already knew that a very high number of businesses were in trouble but did nothing to help. They say many bankruptcies could have been avoided, despite the economic crisis.

The Union of Independents and SMEs is calling for the reactivation of crisis measures for self-employed workers which would include a guarantee of an income for self-employed workers who face banckruptcy before they are officially declared bankrupt.

Michel Ajzen, Université Catholique de Louvain – Institut des Sciences du Travail