Company on the Brink of Bankruptcy. Crisis or New Opportunity for Success?

Analysis of data on the phenomenon of company bankruptcy in Europe, according to available records, allows us to conclude that the scale of the phenomenon of bankruptcy in Poland is not as large as in western European countries. Therefore, is bankruptcy as the end of a company's existence perceived in the same way in Europe? Are there tools protecting against bankruptcy and do entrepreneurs use them?

In Europe, around 30% of new companies go out of business in their first three years. Within five years, this percentage rises to around 50%. Estimates suggest that annually around 1 in 10 companies may go out of business for a variety of reasons, including bankruptcy.

The year 2024 has shown that growth has been going on for six quarters number of bankruptcy applications EU enterprises. Compared to the last quarter of 2023, the number of insolvencies increased by 8.4 per cent, reaching its highest level since data collection began in 2015, Eurostat reported. An analysis of insolvencies by activity shows that all sectors of the economy saw an increase in insolvencies in the second quarter of 2023 compared to the previous quarter of '23.

The largest number of insolvencies was recorded in the sectors:
- accommodation and food services (+23.9 per cent),
- transport and storage (+15.2%)
- and education, healthcare and social activities (+10.1 per cent).

According to preliminary statistics, in February 2024 the number of submitted bankruptcy applications in accordance with normal regulations increased by 18.1 percent compared to the previous year. In January 2024, the increase was 26.2 percent.

According to official data, 17,814 companies filed for bankruptcy in Germany in 2023. companies, which means growth by more than one fifth (22.1 percent) compared to the previous year. For comparison: in 2009, during the financial and economic crisis, almost 33,000 companies in Germany experienced financial difficulties.

Small and medium-sized enterprises (SMEs) are more vulnerable to bankruptcy than larger companies, due to fewer financial resources and greater sensitivity to market changes.

Despite the difficulty in obtaining accurate figures, there is a broad consensus that business failures are a common phenomenon across Europe, and their number is closely linked to the economic condition and government policy. Entrepreneurs need to be aware of the risks and take steps to minimise the chances of failure.

Bankruptcy companies in Poland is a phenomenon that is monitored by various institutions and agencies. In recent years, the number of bankruptcies companies in Poland is at the level of:

The perception of corporate insolvency in Europe varies by country, business culture and legal framework. Each country in Europe has its own unique bankruptcy laws. For example, Germany has a well-defined insolvency law that emphasizes restructuring and preservation of enterprises, while bankruptcy law in the UK is more flexible and tries to balance the interests of creditors and debtors. The business culture in countries such as France, Spain and Italy shows that bankruptcy carries a certain stigma but is not seen as business failure.

In contrast, in Nordic countries such as Sweden and Finland, bankruptcy is more often seen as part of the business life cycle and not necessarily as a final failure. In Anglo-Saxon countries such as the UK and Ireland, the approach to bankruptcy is more pragmatic. Entrepreneurs who have experienced bankruptcy are often more likely to be given a second chance, which promotes innovation and risk-taking.

In some European countries, there are well-developed programmes to support companies in financial difficulty. For example, in France there are mechanisms in place that are designed to to protect companies from bankruptcy by enabling debt restructuring. The European Union is taking steps to harmonize bankruptcy laws. Already in 2019, a directive on preventive restructuring frameworks was introduced, which aims to facilitate the restructuring of indebted companies throughout Europe before they go bankrupt. In Poland, the Restructuring Law came into force in 2016, the primary goal of which is to protect companies from bankruptcy.

Bankruptcy, as the termination of a company, is viewed differently in different European countries, depending on local regulations, business culture and approach to risk and entrepreneurship, but we should remember as a society that this is a normal life cycle companies and not tie bankruptcy with personal failures. Education is particularly important, as a huge percentage of entrepreneurs are not aware of the existing support tools and are sometimes afraid to use them for fear of failure.

Situation crisis in the company is often perceived as a failure, which can cause feelings of shame, as many entrepreneurs equate their professional success with their personal value, so failure can hit their self-esteem.

Of course, as entrepreneurs, we set ambitious goals for ourselves, which makes failures more likely. hard to accept. Business failure of the company most often leads to serious financial problems, which additionally deepens the feeling of shame. Losing one's own financial resources or those of other people (e.g. investors, family) can cause a sense of responsibility and guilt. Entrepreneurs are often afraid that they will be judged by family, friends, employees and colleagues in the industry. In such situations, the fear of losing reputation and trust leads to hiding failures. It is not without significance that failures in business is moving to the private sphere, which deepens the crisis. Such behaviors do not allow for action to protect and get out of a crisis situation. Noticing the problem, clear communication, and searching for solutions are the path to achieving the goal.

In recent years, attitudes to failure have begun to change in many circles. Many companies and business communities are beginning to recognise the value of learning from mistakes. Entrepreneurial associations are emerging, where sharing experiences, learning, mutual support, and positive attitudes are principles that help entrepreneurs grow. As an entrepreneur, I belong to a group of https://bniwoman.pl where the exchange of experience, mutual action for business development, learning, support are core values. 

Entrepreneurs these days have access to support and mentoring networks, that help them deal with and learn from failure. Failure is increasingly seen as an integral part of the innovation and entrepreneurial process and this is something we should strive for. The growing interest in positive psychology and building mental resilience is helping entrepreneurs to cope better with failure.

Although the shame associated with failure within the company is still common, changing attitudes to failure are helping entrepreneurs to cope better. Entrepreneurs who are able to learn from their mistakes and keep trying are often successful in the long term.

Reaction to crisis in the company requires a well-thought-out and systematic approach that will allow for minimizing damage and restoring the normal functioning of the enterprise and, if the economic situation indicates it, bankruptcy should be declared with simultaneous action to protect against the management's liability for the company's obligations.

Here are the basic steps to take if you notice problems in your company:

1. Assessment of the situation:
   a) Gather information about the problem,
   b) Identify the causes crisis and its potential impact on the company,
   c) Contact a professional Restructuring Advisor,
2. Preparation of a common architecture for restructuring operations/ bankruptcy where appropriate
3. Development of consistent internal and external communication
4. Develop an action plan that includes short-term and long-term steps
5. Prepare a restructuring plan and identify the tools to be used to achieve the restructuring objective,
6. Implementation of actions,
7. Monitoring of activities,
8. Willingness to make changes to the plan if the situation requires it,
9. Evaluation of the effects of the measures taken,
10. Make changes to company proceduresto prevent similar situations in the future.

It is important to act quickly, but at the same time to analyse each step carefully. It is also crucial to maintain open and transparent communication with all interested parties. As PMR Law Firm We actively support entrepreneurs in restructuring not only on the way restructuring, but also in many other key areas. Our team of experienced experts helps in effective communication with creditors, which is an essential element of successful restructuring. Thanks to our professional services, entrepreneurs can count on negotiating favorable terms of debt repayment and building constructive relationships with creditors. In addition, we offer wide-ranging business support, advising on strategic, operational and financial issues, which allows entrepreneurs not only to survive difficult times, but also to dynamically develop and achieve long-term goals.

It is important to remember that a Restructuring Advisor is a specialist who can play a key role in helping a company in financial difficulty. Both small and as well as big problems in the company require an outside perspective. Thinking that I know best, I know my company best (even though it is true) in such a situation is not good. A stressful situation, a deepening crisis, often financial problems require support from a Restructuring Advisor. Remember that in such situations there are additional obligations that, despite the willingness, cannot be carried out by the entrepreneur himself in the appropriate time frame. And as we know, we cannot wait, we have to act.

Restructuring Advisor will conduct a detailed financial analysis of the company, identifying key financial and operational issues. Together with the entrepreneur, he or she will identify the causes of the problems, such as excessive debt, liquidity problems, management errors, declining sales or changes in the company's external environment. He then develops a detailed restructuring plan, which may include cost reduction, debt restructuring, changes to the organisational structure, optimisation of operational processes and a timetable for action, indicating specific steps to be taken within a specific timeframe.

If negotiations with creditors are required in order to obtain more favourable debt repayment conditions, such as a reduction in interest rates, an extension of the repayment period or a write-off of part of the debt, the adviser as a professional external specialist, often working alongside negotiators, is able to achieve much more than the entrepreneur himself.

It should also be remembered that the Restructuring Advisor, acting as a court body in restructuring proceedings (court supervisor, court administrator) will guide the entrepreneur through the process of both restructuring both judicial and extrajudicial. In the so-called simplified restructuring (proceedings for approval of the arrangement) the advisor in 95% leads the process of restructuring the company and the Court only approves the arrangement with creditors concluded in the restructuring proceedings. Thanks to cooperation with the advisor, we are sure that all restructuring activities are in accordance with applicable legal regulations, minimizing legal risk.

Counselor restructuring is a key partner in the process of repairing the company, which provides the necessary knowledge, experience and support to enable the company to overcome its difficulties and compete in the market. In the event that the company's existence has to be terminated by declaring bankruptcy, this should also be prepared in the cooperation with the Restructuring Advisorso as not to incur risks. 

Available data regarding company bankruptcy both in Poland and in Europe allow us to draw the conclusion that a crisis in a company is a natural phenomenon, and how we survive it depends directly on us. Individual countries in Europe, including Poland, have the tools to prevent bankruptcy and keep a company on the market if economic considerations allow it. Conscious management and taking action in a crisis situation allows to achieve the goal that has been set.

Małgorzata Anisimowicz

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