In the middle of last year, the NBR key rate was 3.75%. In March 2023, it almost doubled to 7%, in an attempt by the Central Bank to reduce inflation. But the successive appreciation of money came at a cost: in the first quarter, more than 1,600 companies went bankrupt.

Short:

• The most affected areas were trade (476 companies), construction (308 companies) and industry (195 companies).

• Regions with the largest number of bankruptcies: Bucharest (282 companies), Bihor (143 companies), Cluj (105 companies)

• In the first quarter of 2023, the courts recognized five projects of preventive organization of impact companies with assets over 1 million euros.

Financial difficulties caused 1,644 companies to go bankrupt in the first quarter of 2023, CITR, a member of the Impetum Group, said on Monday.

Of these, 23 (compared to 17 in Q1 2022) are companies with more than 1,950 employees, registered fixed assets worth more than 589 million lei and a total turnover of 805 million lei, CITR analysis shows.

“The evolution of the number of insolvent companies will strictly depend on the effect that an increase in interest rates or inflation can have on certain types of business, unless there are drastic changes either in the state’s approach to tax debts or in the way banks conduct operations with the credit situation. We are likely to see an increase in insolvency filings, mainly due to rising debt and pressure from creditors to recover their claims.” said Paul Dieter Cirlenaru, CEO of CITR.

At the global level, one of the main solutions to the challenges caused by the pandemic and problems in the financial markets has been the area of ​​tax incentives and the increase of tax incentives in favor of companies. These benefits manifested themselves, first of all, in the accumulation of additional debts, so the problems of the companies were not solved, but only postponed. The main risk noted by CITR experts is that once these facilities are reduced or even disappear, these companies will find themselves under great financial pressure, the amount of accumulated debt will be very difficult to manage and impossible to reduce in the short term.

What does the restructuring market look like in 2023?

In the first quarter of 2023, the court allowed five preventive agreement projects for impact companies with assets over 1 million euros.

“If at the beginning of 2022, a significant number of impact companies were financially sound, they worsened their situation during the year and recorded debts to ANAF, which increased from 264 million lei in June 2022 to 786 million lei at the end of the year. These numbers have increased by 197% in just 6 months. The solution for these companies is restructuring. We can say that we see a growing interest in new restructuring mechanisms, especially in the preventive concordat, which previously existed in our legislation, but in a less effective form. We are pleased that our efforts to make the restructuring decisions known in the business environment are yielding results.” said Paul Dieter Cirlenaru, CEO of CITR.

Given rising inflation, higher interest rates, the inability to refinance existing loans and meet the next repayment terms, companies will have to resort to new restructuring mechanisms to optimize their operations or even save themselves.