Bankruptcies reach highest ever level in Poland in first quarter of 2021

The number of corporate insolvencies and bankruptcies in Poland reached its highest ever level in the first quarter of this year. Analysts warn that it will rise further yet when state aid dries up.

Prolonged restrictions in Poland have squeezed companies, causing the number of bankruptcies and insolvencies to reach 515 in Q1 of 2020. The figure is 15% higher than in the previous quarter and 122% more year-on-year, according to analysts at mBank.

“Aid programs keep some business owners afloat, but they cannot replace normal economic transactions,” writes the bank, which warns that an end to state funding will lead to a further increase in bankruptcies.

More companies going underwater will be reflected in an increased share of non-performing loans for banks. However, many banks increased their capital reserves, which may “partially cushion” the effect of bankruptcies on banks in 2021, notes mBank.

Most bankruptcies (69%) are handled with simplified out-of-court proceedings, which the government introduced in the second quarter of 2020 as part of its measures to soften the impact of the pandemic on the economy. A further 18% are settled in court, while the remaining 13% are restructurings.

The popularity of the simplified method “comes as no surprise”, says Karol Tatara, a restructuring advisor quoted by Business Insider Polska. It provides insolvent businesses with “extensive protection against enforcement by creditors” and “some protection against the termination of key contracts” such as lease agreements or insurance deals.

The highest growth compared with the previous quarter was recorded in agriculture, where there were 80 insolvencies and bankruptcies, which is 25 more than in the final three months of 2020. That may, however, be a result of simplified restructuring proceedings being introduced for the sector.

According to preliminary results of the agricultural census released last week, the number of farms in Poland has dropped by almost 13% in the last decade as the sector becomes more concentrated and specialised.

The number of bankruptcies is also growing for services and remains high in retail, as shopping malls have recently closed again amid growing coronavirus infections in March. Figures also continue to deteriorate in the construction sector, but analysts expect a turnaround later this year with an injection of EU development funds.

Poland has been in partial lockdown since the onset of the second wave of the coronavirus in autumn, with restaurants and bars limited to offering takeaways since 24 October.

Hotels, cultural venues and sports facilities have also been closed since 7 November (with gyms and pools closed even earlier), only reopening briefly earlier this year.

Current lockdown rules remain in place until 18 April, with schools, cultural institutions and many businesses remain closed. “I think that we’ll return to normal functioning in the [summer] holidays,” said Poland’s health minister this week.

Main image credit:  LEANDRO AGUILAR/Pixabay 

Maria Wilczek

Maria Wilczek is deputy editor of Notes from Poland. She is a regular writer for The Times, The Economist and Al Jazeera English, and has also featured in Foreign Policy, Politico Europe, The Spectator and Gazeta Wyborcza.