Time's Up for 'Zombie' German Firms as Insolvency Waiver Expires

A year-long waiver on insolvency filings has ended in Germany and there are already signs that bankruptcies are starting to pick up in Europe’s largest economy, Reuters reported. Germany introduced the waiver last March, when the COVID-19 pandemic hit, part of a package of measures aimed at supporting businesses but which gave rise to the charge that the government was simply propping up “zombie companies” with no future. Insolvencies duly fell. But since October, Berlin has phased out the waiver. This year only firms awaiting state aid provided since November were exempt from filing - until now. Monday is the first business day that exemption no longer applies. “The expiry of the supposed protection means a return to regular competitive conditions and market-economy transparency,” said Patrik-Ludwig Hantzsch at German credit agency Creditreform. That is welcome news to local critics who say the fall in insolvencies is proof in itself the state has done more than enough and now risks impeding what economic liberals hail as “creative destruction”, the term popularised in the 1940s by Austrian economist Joseph Schumpeter to describe unviable firms folding to make way for more dynamic newcomers. The latest official numbers, for January, show corporate insolvencies down 31.1% on the year at 1,108. But the phase-out of the waiver from October has yet to show in the data as cases make their way through the courts, the Statistics Office said. Read more.