The number of Hungarian companies facing insolvency jumped 21% in the first three months of 2008 compared to the same period last year, with the construction industry, retail and wholesale sectors still experiencing the highest rates, Privátbankár.hu reports, citing the latest report of export credit insurer Coface. This spike in the number of companies unable to meet their obligations was mirrored by an even larger leap – roughly 30% – in the number of firms winding up their operations.
It is a common practice in Hungary for proprietors of failing companies to “prematurely” close the firms, as voluntary liquidation is a simpler procedure and owners can often withdraw assets before they fall into the hands of creditors. According to Coface’s survey, creditors are often too late in realizing that their debtors have filed for voluntary liquidation, and thus see the assets they might have attached “spirited away” by the owners. The rate of voluntary liquidation procedures rose 14% in January-March, over the same period in 2007.
Coface said cases of “Chapter 11″-style bankruptcy protection are still far and few between in Hungary, as the overwhelming majority of proprietors of insolvent companies choose to make off with their firms’ remaining assets rather than seek temporary, court-mandated protection from their creditors. In the first three months of this year, only three companies filed for bankruptcy protection, down sharply from last year.
In the retail and wholesale trade and construction sectors – which together account for nearly half of the current number of insolvencies – the trend is most commonly seen among companies dealing in property management, tourism and IT.
The survey showed Hungarian companies are also underachievers in risk management, as many contractors fail to take action against their debtors for fear of losing business in the future. Most Hungarian companies also have a poor record on credit control as they often choose to keep track of receivables and take on debtors themselves instead of hiring a professional agency.
According to Coface, most of the debt collection procedures it handles could have been avoided with a simple customer rating, adding that only about 2% of the companies, mostly large ones, bother obtaining formal credit information about their contractors.