Bankruptcies rose by 26% YoY to 2020, which was also the first year the bankruptcy rate had increased since the last economic downturn.
While the situation is not as bleak as it had been in the last downturn over 10 years ago, the pandemic has brought about a situation where start-ups without significant assets are failing to get off the ground, while the accommodation, hospitality and related sectors have seen a rise in bankruptcy rates.
Helen Tinkus, analyst at credit agency Creditinfo Eesti, said: “The number of bankruptcies remained at a low level in 2020, but as a trend, there was still a significant increase in the number of bankruptcies, which we had not seen since the last major economic crisis.”
“One can assume that this was partly due to the effects of the coronavirus crisis, but as the bankruptcy process is a long-term process, we will probably see a bigger impact here only next year,” Tinkus continued, per a press release.
341 went bankrupted in 2020, compared with 271 in 2019.
This represents a 0.15% of all registered companies, however.
AS Creditinfo Eesti says it has been compiling the bankruptcy survey on Estonian companies since 2000, with bankruptcy rates coming in waves during that time, reaching their peak so far in 2009, in the aftermath of the global economic crisis.
Bankruptcies fell by 40% in 2011 and by 20% in 2012, thereafter remaining stable, and reaching the low pre-crisis level in 2015.
Bankruptcies among asset-less enterprises have risen particularly, growing by 49% last year, compared with an average fall of 14% a year in 2010-2019, Tinkus said.
This might be due to the peculiarities of the coronavirus crisis, which led to many businesses being still-born at little more than business-plan stage, before they had had a chance to build up assets, Tinkus said, adding caution should be exercised here, since companies without significant assets but which had been successful in the years laading up to 2020 had also gone bankrupt.
While the pandemic hit the tourism and related sectors particularly hard, this did not change the overall picture of bankruptcies by sector.
Nevertheless, accommodation and food services remained the hardest hit sectors, along with manufacturing and construction and also wholesale and retail trade.
“There has been no change when it comes to the fields of activity with the highest bankruptcy rates in recent years. However, the share of bankrupt companies in accommodation and food service activities increased faster than in other activities, both in comparison with other activities and with previous periods,” Tinkus added, noting that this situation was not likely to change in the near future.
A particularly high-profile bankruptcy was the Tallinn T1 shopping mall, which had been facing difficulties even before the pandemic arrived. (ERR/Business World Magazine)