Bankruptcy rate continues to decline

20/08/2007 15:00

In the first six months of 2007, a total of 1,795 businesses and institutions (excluding one-man businesses) went bankrupt. This is a 23 percent reduction relative to the first six months of 2006, when 2,319 businesses and institutions were involved in bankruptcy procedures. The number of bankruptcies dropped to the lowest level in nearly six years, but the decrease in the second quarter of 2007 is less substantial than in the two preceding quarters.The decrease in the number of bankruptcies occurs in across the board. This trend is consistent with the period of economic growth.

This article is restricted to bankruptcies of businesses and institutions, excluding one-man businesses. One-man businesses and natural persons can also go bankrupt. Additional information on the total number of bankruptcies is published on 21 August 2007 in Web Magazine, in the article Fewer personal bankruptcies.

Bankruptcies dropped to lowest level in nearly six years.

On average, 299 businesses and institutions were declared bankrupt each month in the first half of 2007, the lowest level in nearly six years. On average, the number of failing businesses and institutions was reduced by 53 a month in the first six months of 2006. In 2006, the average number of bankruptcies also decreased markedly.

Number of bankruptcies of businesses and institutions (excluding one-man businesses)

One third of failed businesses discontinue their activities within five years

In 2006, altogether 4,228 businesses and institutions went bankrupt. Over 2 percent of them failed within one year after their entry in the business register of the Chamber of Commerce. One third closed down within one to five years and a quarter within five to ten years after registration with the Chamber of Commerce. These ratios have only changed marginally over the years and appear not to be affected by the general state of the economy. In 2003, when the economy was at a low ebb, approximately one third of businesses and institutions also went bankrupt within five years after their registration with the Chamber of Commerce.

Bankruptcies of businesses and institutions (excluding one-man businesses) by age, 2006

Fewer bankruptcies across the board

In the first six months of 2007, the number of bankruptcies of businesses and institutions (excluding one-man businesses) was 23 percent down on the same period last year. The decrease happened across the board. In the services sector in particular, the number of bankruptcies was distinctly lower than in the same period last year. The most substantial decline was recorded in transport, storage and communication, where the bankruptcy rate dropped by over 40 percent. With 25 and 27 percent respectively, the bankruptcy rates were also considerably lower in the sector trade, hotels and catering services and repairs and in the sector business services. The number of bankruptcies in manufacturing industry also dwindled, though the decrease was less substantial than in the services sector. In the construction sector, on the other hand, the bankruptcy rate rose marginally relative to the first half of 2006. It must be borne in mind that this sector includes a relatively large amount of one-man businesses. If one-man businesses are also taken into account, the total number of failed businesses in the construction sector indeed decreased in the first half of 2007.

Bankruptcies of businesses and institutions (excluding one-man businesses) by economic activity

Trend is consistent with economic developments

The reduction in the number of bankruptcies of businesses and institutions is consistent with the economic growth over the past two years. Usually, economic growth goes hand in hand with a drop in the number of bankruptcies. The volume of the gross domestic product (GDP) is an indicator of economic growth. In the first six months of 2007, the volume of GDP was 2.4 percent up on the same period one year previously.

Bankruptcies of businesses and institutions (excluding one-man businesses) and GDP

The Business Cycle Tracer is a tool used to reflect the current state and chart the course of the Dutch economy. Bankruptcies of businesses and institutions and GDP belong to the fixed set of fifteen indicators in the Tracer. The Tracer also shows relations between bankruptcies and other economic indicators, e. g. production in manufacturing industry, orders received, consumption, labour volume, vacancies and consumer confidence. Together, the fifteen indicators in the Tracer define the state of the economy.

Business Cycle Tracer, July 2007

At the end of July 2007, the economic situation was very favourable, albeit slightly less favourable than at the end of June. The heart of the scatter in the Tracer was still located in the high economic growth stage. All fifteen indicators in the Tracer perform better than their long-term average and for most indicators growth is increasing. GDP is situated in the green quadrant of the Tracer. Bankruptcies shifted towards the orange quadrant, compared to the end of June, because the decline in the number of bankruptcies was less substantial.