Bankruptcy boom: The regions and sectors most affected by financial strain

Bankruptcies and insolvencies are on the rise worldwide. See the impact on key industries in the US, UK, EU and ANZ.

By AnsaradaWed May 29 2024Industry news and trends, CEO-CFO, Bankruptcy and Insolvency

According to the latest Global Insolvency Outlook report from Allianz, bankruptcies worldwide went up by 7% in 2023, following three years of sharp increases. For 2024, a further increase of 9% is anticipated before these stabilize; it’s predicted that bankruptcies will remain high but ultimately stop increasing in 2025.
2024 began with a rate of bankruptcies & insolvencies higher than before the pandemic in most developed countries. Three out of four countries saw an increase in business bankruptcies in 2023, with the majority experiencing a rise of more than ten percent. Worldwide, the average increase in business bankruptcies sped up from 23% in 2022 to 29% in 2023, marking the fastest growth since 2009 (33%).
In this article, we take a closer look at the bankruptcy & insolvency landscape across key regions, and what the next few years could look like at the current business failure rates.

US bankruptcies hit a 13-year high in 2023

In the United States, 50 corporate bankruptcy filings in December 2023 saw the year close with the highest number on record since 2010.
In 2023, there were 642 total filings, notably higher than the previous two years and slightly surpassing 2020, which saw a surge in filings – in part due to the COVID-19 pandemic. 

According to data from S&P Global, the industries most impacted were:
  • consumer discretionary
  • healthcare
  • industrials 
Each of these sectors saw 80+ bankruptcy filings over 2023.
The rise in U.S. bankruptcies can be attributed to several key factors: higher interest rates, stricter lending standards, and the end of pandemic-related financial relief that had been available in previous years. These changes have made borrowing more expensive and less accessible, putting additional financial pressure on businesses and individuals who had previously relied on relief measures to stay afloat​.
Over the past two years, financial conditions for businesses (as well as households) have become considerably more stringent due to the Federal Reserve's aggressive interest rate hikes aimed at controlling inflation.
Companies are expected to continue facing relatively high interest rates and strong wage growth in the short term, despite investor expectations that the Federal Reserve might lower interest rates as soon as June – timelines that have now been pushed out to November 2024.

Record UK business failures in 2023, led by construction

UK bankruptcies also hit record numbers in 2023, with a 30-year high in England and Wales.
Over 25,000 company insolvencies were recorded, marking the highest number since 1993, as businesses grappled with increasing costs and interest rates alongside elevated energy expenses and constrained consumer spending amid a cost-of-living crisis. Public data from the UK government reveals that one in every 186 active firms went bankrupt in 2023.
Looking forward, signs point to tough conditions persisting through 2024. Retail and hospitality sectors are expected to be especially impacted by the recent increase in the National Living and National Minimum Wage.
Construction firms are also struggling due to a downturn in the housing market, driven primarily by higher interest rates. A record 4,371 UK construction companies collapsed last year, ahead of any other sector. This represents a 7% increase from the previous year, as companies face rising costs for materials, labour, and borrowing. Data from the Insolvency Service shows that 1 in every 5 business failures occurred in the construction sector.

Transport, hospitality and solar among those hit hardest in Europe

According to data from Eurostat, EU businesses saw only a slight rise in bankruptcy declarations (0.6%) in the last quarter of 2023 compared to the previous quarter.
By the end of 2023, the number of bankruptcies had surpassed the levels recorded between 2016 and 2019, before the pandemic.
A closer look at bankruptcies by sector reveals that the transportation and storage sector experienced the largest increase (9.3%), followed by trade (7.7%) and accommodation and food services (1.1%).
The hospitality sector – including restaurants, cafes, and hotels – experienced severe setbacks due to the pandemic and is still grappling with the repercussions. By 2023, the rate of bankruptcies in hospitality was almost double what it was in 2015, according to Statista.
Another industry under pressure is EU solar production. Discussions are underway to assist European solar manufacturers who are facing tough competition from China. Chinese solar panels, heavily subsidized, are driving down prices and causing bankruptcies in the EU solar industry, as seen in recent closures in the Netherlands and Austria.
While the EU aims to ramp up solar panel production by 2030, it currently only produces a fraction of what's needed. The industry wants direct EU support but is cautious about starting a trade dispute over Chinese subsidies, fearing it could hurt the EU solar market and slow installations across Europe.
EU leaders are proposing to streamline bankruptcy and corporate tax laws across the 27-nation bloc to encourage private investment in renewable energy and digital economy initiatives. This includes plans for a European securitization market and enhanced oversight of cross-border financial activities. They also aim to facilitate easier investment in EU companies and create a straightforward savings product for retail investors across borders.

Australian bankruptcies hit a 25-year high

New bankruptcy & insolvency transactions in ANZ broke even this quarter at 0% growth (QoQ) but Ansarada Indicators data reveals a concerning 74% increase over the past 12 months (YoY). Read more in the ANZ M&A Deal Indicators report.
March saw a record level of Australian insolvencies, according to data released by ASIC; a total of 1131 businesses went bust, the highest volume since 1999. Among the most struggling industries, 28% of these were in construction, followed by 15% in accommodation and food services. ‘Inadequate cash flow or high cash use’ were the most commonly reported causes of business failure.
According to the Australian Institute of Corporate Directors, corporate insolvency rates are not only rising, but are expected to increase further into 2024. Across ANZ, companies that have built their business plans on the assumption they will retain access to inexpensive loans and low interest rates are starting to feel the squeeze.

New Zealand not exempt from insolvency pressures

Early warning signs for New Zealand are also concerning. February 2024 saw the highest number of liquidation appointments in the last 3 years, which many are attributing to the tougher stance taken by Inland Revenue and creditors ‘losing their patience with late payments’. 
After adopting a cautious strategy during the pandemic, Inland Revenue is now taking a more assertive approach regarding tax responsibilities - particularly in the construction industry, where around 40,000 companies face outstanding debt or overdue tax returns.
First-quarter inflation data published in April revealed that goods price pressures were decreasing while services price pressures were increasing, keeping inflation problematic overall. New Zealand's economy has been contracting since late 2022, and the unemployment rate has gone up from 3.2% to 4.0%.

Resilience is key to thriving in an uncertain global business landscape

As we look to the future, projections from Allianz indicate the growing bankruptcy trend is likely to continue across four out of five countries, with an average increase of 12% year-on-year. Among these, the United States, Spain, and the Netherlands are anticipated to experience the largest surges, with projected increases of 28%, 28%, and 31% year-on-year, respectively.
Despite these challenges, there are opportunities for strategic adaptation and resilience-building within the global business community. It is crucial for businesses to stay informed about market dynamics, regulatory changes, and economic trends to navigate uncertain times effectively. By proactively identifying and addressing potential risks, businesses can position themselves for long-term sustainability and success in a dynamically evolving global economy.

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