Austria Businesses Heading for a Record Year of Bankruptcies in 2024
Austria is facing a possible record year for corporate insolvencies in 2024. The current economic situation shows a significant increase in insolvencies, especially in the first half of the year.
In the first six months of the year, 2,098 corporate insolvencies were opened, a 35.8% increase from the previous year and the highest figure for 15 years. / Picture: © Wikimedia Commons / Gugerell / CC0
The Alpenländische Kreditorenverband or Alpine Creditors' Association (AKV Europa) recently published alarming figures: 2,098 corporate insolvencies were opened in the first half of 2024. This represents an increase of 35.35% compared to the previous year and is the highest figure in 15 years. The AKV Europa is an organization, officially recognized by the relevant Austrian supreme authorities, that specializes in the protection and support of creditors. It offers services such as credit checks, debt collection, and insolvency representation to protect the financial interests of its members. In short, the AKV helps companies enforce their claims against insolvent debtors and protect themselves against financial losses.
The total liabilities of insolvent companies rose to 11.5 billion euros, which corresponds to a nine-fold increase compared to the same period last year. This dramatic increase is mainly due to several major bankruptcies, including that of the Signa Group owned by entrepreneur Rene Benko, and the insolvency of the Austrian subsidiary of U.S. electric car manufacturer Fisker. These two insolvencies contributed significantly to the high level of liabilities, although the final claims in these cases have not yet been fully recognized.
Causes and effects of insolvencies
There are many reasons for the rising number of insolvencies. The Austrian economy is struggling with several challenges: a continuing reluctance to consume and invest, an ongoing industrial recession, a slight decline in gross domestic product (GDP) in the first half of the year compared to the previous year, and rising unemployment figures. These difficult conditions are having a particularly negative impact on the retail, construction, and hospitality sectors. The number of insolvencies in retail rose to 529, followed by 493 in construction and 356 in gastronomy.
Another worrying aspect is the high number of insolvency applications rejected for lack of assets, which rose by 16.74% to 1,311 cases. This development shows that many companies do not even have enough free assets to cover the costs of insolvency proceedings.
Despite the increase in company insolvencies, the number of jobs at risk remained almost constant at 9,441 employees. This is mainly since some of the largest insolvencies, such as that of Leiner & Kika Möbelhandels GmbH in the previous year, affected many jobs.
Developments by sector and federal state
The high number of insolvencies can be seen in all federal states, with Vorarlberg and Upper Austria recording the highest growth rates with an increase of 110.34% and 60.81% respectively. There was also an increase of 43.02% in Vienna. These regional differences make it clear that the economic challenges are being felt across the country, but are particularly pronounced in some regions.
The reasons for the high number of company bankruptcies are complex. In addition to a reluctance to consume and invest, high interest rates and a lack of demand for credit are the main reasons why companies are struggling. These factors are having a particularly negative impact on new construction, which has recorded a decade-long low in new approvals due to strict lending guidelines and the KIM regulation.
Forecasts and outlook
The economic forecasts of WIFO and the Institute for Advanced Studies (IHS) for 2024 are also gloomy. Both institutes only expect GDP growth of 0.2 %. As a result, the AKV expects around 7,000 insolvencies in 2024, including rejected applications due to lack of assets. This would represent a new high and further exacerbate the difficult economic situation.
The situation in the private insolvency sector looks somewhat more stable. In the first half of 2024, 4,600 personal insolvencies were opened, an increase of 1.25 % compared to the previous year. The total number of personal insolvencies thus rose to 5,034, with the number of rejected applications falling by 0.91% to 434 cases. Despite this stabilization, the number of personal insolvencies remains well below the record years of 2018 and 2019.
Challenges and opportunities
The economic challenges facing Austria require urgent measures to halt the downward trend and restore economic stability. The AKV is calling for increased efforts to support the affected companies and their employees. In particular, improving lending and promoting investment could help to stabilize the economic situation.
The high number of insolvencies in the construction and retail sectors underlines the need for targeted measures to support these important economic sectors. The hospitality industry, which has been hit hard by the current economic situation, also needs support to reduce the number of insolvencies.
The Austrian economy faces considerable challenges in 2024. High interest rates, weak domestic demand, and structural problems in various sectors are leading to a significant increase in company insolvencies. The AKV warns of a record year of bankruptcies and calls for measures to help the affected companies and their employees. It remains to be seen how the economy will develop in the second half of the year and whether countermeasures can be taken to halt the downward trend. The coming months will be decisive in determining whether Austria can overcome the economic crisis or whether further insolvencies will follow.