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France faces massive wave of bankruptcies of small businesses by end April

Empty streets in Paris, shops, tourism, retail hard hit by anti-virus measures
Empty streets in Paris, shops, tourism, retail hard hit by anti-virus measures REUTERS - GONZALO FUENTES

French risk assessment consultancy Infolégale is predicting a huge wave of bankruptcies in France by the end of April, when it estimates the first effects of the coronavirus lockdown will start to be felt among the most vulnerable businesses.

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Commercial Court documents from 1-3 April show that 72 percent of companies employing fewer than 5 employees and 51 percent of companies with a turnover of under 500,000 euros are now at grave risk of financial collapse.

Business started to turn sour after the French government decided on 12 March to impose a lockdown that would eventually affect all non-essential business and oblige most French to work from home.

According to Infolégale, 63 percent of failing companies have a share capital of less than 10,000 euros. Of those, 58 percent were already in the red for the previous two years.

Companies most affected were those forced to stop as a result of the confinement, notably retail, construction, public works, bars, restaurants, hairdressers, body care specialists and advertising agencies.

"We are going to witness a first major wave of bankruptcies at the end of April," says Infolégale President Frédéric Julien. He expects this to happen in spite of government promises to support business activity.

A French support plan, approved by the European Commission on 21 March includes mobilising over 300 billion euros of liquidity in support for companies affected by the economic impact of the coronavirus pandemic.

It consists of three policies:

  • Two schemes enabling the French public investment bank Bpifrance to provide state guarantees on commercial loans and credit lines, respectively, for enterprises with up to 5,000 employees.
  • A scheme to provide state guarantees to banks on portfolios of new loans for all types of companies. This is direct aid to the companies that will enable banks to quickly provide liquidity to any company that needs it.

But many company owners fear the measures won't be enough to save everybody. 

Initial problems are already being caused by companies not being able to pay much of their overhead, including rent, water and electricity bills and salaries.

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