Surge in bankruptcies inevitable despite Covid-19 relief measures
The extension of the Dutch government’s Covid-19 relief measures for businesses has ensured that in the last six months of 2020 the number of bankruptcies was at an all-time low. However, according to the Bijzonder Beheer Barometer (special risk management barometer) an initiative of PwC and the Department of Business Studies of Leiden University, this has only created a situation of respite and is certainly no solution.
The peak that was predicted in cases referred to special risk management departments at banks has not materialised yet. But the majority of the 122 restructuring experts who participated in the Bijzonder Beheer Barometer, agree that this does not mean that a surge in bankruptcies will not occur. The rise in special risk management cases will occur one quarter later than was previously expected and is now expected in the second quarter of 2021. This is mainly due to the announced extension in the relief measures. The hotel and catering, wholesale and retail trade, culture, and recreation sectors are expected to be most strongly represented in businesses that are in trouble. The panel of experts believes that the chance that businesses will survive following special risk management has dropped by 41 percent.
Banks and lenders have a special risk management department, known in the Netherlands as bijzonder beheer. Commercial departments pass corporate clients to this special department when a high risk profile is identified in the credit relationship.
Many businesses are making use of the government measure that permits deferral of tax payments due to Covid-19. The experts say that the repayment obligation of this tax debt, after the coronavirus crisis, will be the most important cause of the influx in special risk management referrals. It is questionable whether businesses in different economic circumstances will be able to repay the accumulated debt. According to the Bijzonder Beheer Barometer, the Dutch Tax and Customs Administration will also be asked to contribute to a solution. However, it is questionable whether they will be provided with adequate facilities and will be sufficiently prepared to take on this role. If the Tax Administration is unable to properly fulfil this important new role, many of the relief measures will have been money down the drain. The outcome will be that many businesses will still, unnecessarily, go bankrupt.
About the Bijzonder Beheer Barometer
The Bijzonder Beheer Barometer is based on a survey held among a panel of experts, including risk management bankers, insolvency lawyers, restructuring consultants and investors. The aim of the barometer is to analyse the state of the economy in the Netherlands in a different way.