Credinform Rus: Covid-19 and the forthcoming bankruptcy wave in Russia

It is expected that the Russian economy will face a wave of bankruptcies in the next 6 months. The reason - the end of the moratorium on bankruptcy introduced on April 1, 2020 due to business activity deceleration resulting from the impact of Covid-19. Realizing the scale of future damage, the Government of Russia suspended the initiation of insolvency proceedings for 6 months in order to avoid mass company liquidations.


Along with the moratorium, restrictions are introduced that directly affect the growth of companies liquidated due to insolvency, namely: bans for selling assets and illiquid property, changes in ownership, distributing profits and paying dividends. On the one hand, this measure will prevent unscrupulous debtors from withdrawing assets and selling property, but on the other hand, it puts the owners of companies in a difficult situation where they are obliged to maintain unprofitable assets, pay costs and accumulate debts.


The Federal Bankruptcy Law regulates the duration of the moratorium, which can be extended by a decision of the Government if enough reasons remain. According to the Ministry of Health and the Russian Federal Service for Surveillance on Consumer Rights Protection and Human Wellbeing, the second wave of Covid-19 may start in autumn. The extension of restrictive measures should be expected not only for the population but also for businesses: the first lockdown has been too expensive for companies, and not every business will survive in the second one.

Despite this fact, we can’t state that Covid-19 is precisely the reason for mass insolvencies.


At present there are 3.6 million active legal entities in Russia, 2 million companies have filed financial statements for 2019, of which 30% show problems with solvency and financial stability. The total share of companies capable of withstanding a short-term economic crisis or recession without significant losses does not exceed 15%.


It turns out that already in 2019, before the coronavirus, every third company has experienced financial difficulties.


SMEs are affected by the pandemic mostly: travel industry and hospitality, public catering, consumer services and beauty industry, leisure and entertainment are on the verge of ruin. Small businesses with one or two cafes or beauty salons are in the most dangerous position.


According to a survey of micro-, small- and medium-sized enterprises conducted by the National Agency for Financial Research (NAFI) in June 2020, many entrepreneurs noted the negative impact of the pandemic: 76% reported a decrease in revenue, 66% - declining demand for goods or services, 36% - a decrease in the number of suppliers, 24% - cut of branches / sale offices. Every third company (34%) put the staff on unpaid enforced leave, and every fifth (18%) had to pay off employees. Most businesses do not expect a return to the pre-crisis level in the short term.


The coronavirus pandemic has become a trigger in bankruptcies but not a main factor. Wrong strategy, lack of high-technology facilities and financial reserves accelerated the life cycle of many companies and brought it to its logical end.


Source: Information agency Credinform Rus


Write a comment

Comments: 0