Bankruptcy - in Individual Countries - Europe in General

Europe in General

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During 2004, the number of insolvencies reached all time highs in many European countries. In France, company insolvencies rose by more than 4%, in Austria by more than 10%, and in Greece by more than 20%. The increase in the number of insolvencies, however, does not indicate the total financial impact of insolvencies in each country because there is no indication of the size of each case. An increase in the number of bankruptcy cases does not necessarily entail an increase in bad debt write-off rates for the economy as a whole.

Bankruptcy statistics are also a trailing indicator. There is a time delay between financial difficulties and bankruptcy. In most cases, several months or even years pass between the financial problems and the start of bankruptcy proceedings. Legal, tax, and cultural issues may further distort bankruptcy figures, especially when comparing on an international basis. Two examples:

  • In Austria, more than half of all potential bankruptcy proceedings in 2004 were not opened, due to insufficient funding.
  • In Spain, it is not economically profitable to open insolvency/bankruptcy proceedings against certain types of businesses, and therefore the number of insolvencies is quite low. For comparison: In France, more than 40,000 insolvency proceedings were opened in 2004, but under 600 were opened in Spain. At the same time the average bad debt write-off rate in France was 1.3% compared to Spain with 2.6%.

The insolvency numbers for private individuals also do not show the whole picture. Only a fraction of heavily indebted households will decide to file for insolvency. Two of the main reasons for this are the stigma of declaring themselves insolvent and the potential business disadvantage.

Read more about this topic:  Bankruptcy, In Individual Countries

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