INSOLVENCY EVOLUTION IN THE EUROPEAN UNION

Iuliana Eugenia Georgescu, Prof.Univ.Dr, Faculty of Economics and Business

Administration, Alexandru Ioan Cuza University of Iasi, Romania
iuliag@uaic.ro
Elena Cristina Baciu, Phd., Doctoral School of Economics, Faculty of Economics and
Business Administration, Alexandru Ioan Cuza University of Iasi, Romania
baciu.elenacristina@yahoo.com
Irina Chiriac, Phd., Doctoral School of Economics, Faculty of Economics and
Business Administration, Alexandru Ioan Cuza University of Iasi, Romania
irinaochiriac@yahoo.com
ABSTRACT Europe is still having a difficult time from an economic point of view.
This situation has negative effects on the economy at the microeconomic level and
causes insolvency or bankruptcy of entities. This study aims to analyze the
phenomenon of insolvency of companies from different European Union countries.
The analysis performed has revealed, on the one hand, the countries that
have suffered serious changes in the considered period and, on the other hand, the
differences between European countries included in the study. Such an analysis
demonstrates that many companies come voluntary or involuntary to insolvency and
this phenomenon is not only expanding in emerging markets.
KEY WORDS insolvency, European Union, Western Europe, Central and Eastern
Europe, insolvency laws

INSOLVENCY EVOLUTION IN THE EUROPEAN UNION

INTRODUCTION
The study of companies that have financial difficulties presents a continuing interest
for present academic research. This is due to the many implications of bankruptcy on
macroeconomic issues. This paper presents the number of insolvencies for European
E
Union countries since 2004.
Economists state that, in a market economy, between 2 and 6% of companies go
bankrupt within a year. Since only about
about 50% of companies still survive after three
years from their opening (Watson, 2003), their failure is a phenomenon that requires a
deep analysis.

1. INSOLVENCY
NSOLVENCY IN THE EUROPEAN UNION
Although the 27 states members of The European Union form a community,
community they
differ in many ways. The characteristics of insolvency
insolvency and bankruptcy laws from a
state, together with the level of development of each one of them are reflected in the
capacity of private economic environment to adapt and develop.

8701

17690
Mean

7510
Sweden

United Kingdom

4770

Slovenia

Spain

808

377

Slovakia

5144
Portugal

655
Poland

Romania

7340
918
Netherland

1635

Luxembourg

2705
Latvia

Lithuania

10923
Italy

1525
Ireland

355
Hungary

Greece

Germany

France

1047

2870
Finland

6460
Denmark

Estonia

5752
Czech Republic

Bulgaria

Belgium

Austria

462

9620

6657

17883

21262

32100

51060

Figure 1.
1 Insolvencies in European Union (2010)

The countries with the highest number of insolvent

i
companies are France, Germany,
United Kingdom, Hungary and Romania.
Romania. The first three of these are developed
countries from Western Europe and, in
i addition, in these countries the number of
insolvency cases declined in 2010. In contrast, in Romania and Bulgaria, which are

emerging countries, constant increase in the number of insolvent companies shows

their inability to cope with economic changes.
1.1. Insolvencies in Western Europe
Among the Western European countries we also find the countries with the highest
number of insolvent companies. Although Western Europe enjoys a more developed
and stable economic environment, insolvency is a common phenomenon.
Reforms in Germany, Spain and United Kingdom in the recent years have resulted in
a reduction of the protection for creditors and favored continuity of firms activity
(Lopez Gutierrez et al., 2011).
Insolvency system has two possible orientations: creditor-orientated system or debtororientated system (Lopez Gutierrez et al., 2011). Bankruptcy law in United Kingdom
is representative, as a model of system that protects the creditor in all phases of the
insolvency procedure. In fact, in a classification of the main European countries
regarding the insolvency system it was highlighted that the UK insolvency legislation
and the old German bankruptcy law are regulation that favor creditors, especially
those who hold securities for their debts (Lopez Gutierrez et al., 2009). However,
changes brought to the German law adopted in 1994 and applied since 1999 involve
measures in favor of the debtor and company's existence and continuity. These
changes relate to:
Table 1. Changes in the German insolvency regulations
BEFORE 1999
Who has the right to file for insolvency? The debtor
Who has the power to take the decisions
in the beginning of the procedure?

The court

Who will control the firm during the

procedure?

The debtor, but

under the
supervision of an
administrator or by
the creditors
committee
No

Do creditors have the right to cash in

their guarantees?
Does a reorganization plan affect the
creditors?
Who approves the reorganization plan?

AFTER 1999
The debtor and also
the creditors
The creditors
committee; however,
the court has the
right to cancel the
request
The court or the
creditors committee
will nominate an
administrator to
handle the business
Yes

No

Yes

Creditors

Creditors; however,
any changes in the
structure of the
company must be
also approved by
shareholders

After 1999, Germany's filing for insolvency can also be done in case of imminent
insolvency. The same case happened in the United Kingdom after the adoption of
Enterprise Act in 2002. However, different from other countries is that in Germany
insolvency application may be filed in case of over indebtedness.
The economic sector most affected by insolvency in Germany was, in every year, the
services sector, but the industrial sector is hardly struck and many changes in this area
are occurring.
Since not all national regulations cover personal insolvency, for the consumer, data in
this study refers only to insolvency of the companies. This is also the case for
Germany, where legislation includes consumers insolvency. If we would have taken
into account this factor, the situation would be different. Values for this type of
insolvency in Germany exceed one hundred thousand cases and are increasing with
every year.
Although the bankruptcy code was revised in 1994, German economic society is still
waiting for changes that will strengthen creditor rights and will provide improvements
in the sense of encouraging reorganizations. Currently, this process is not often
implemented, mainly because of poor involvement of the shareholders.
Austria regulated insolvency based on the German model. In these two countries the
first creditors paid are the guaranteed creditors. Another feature of the German type
legislation is that, throughout the procedure, the management of the company is not
changed, considering this characteristic as beneficial to continuity of company's
activity. Managers already have information and know about the company in general
and about its financial situation and their maintenance require them to have a more
cautious position.
Irish legislation is has British origins. However, there are some differences in the
implementation of insolvency procedure. For example, in United Kingdom a
reorganization of company made with the involvement of the same managers is
preferred. In Ireland the situation is reversed.
The particularity of insolvency regulations in France is given by the involvement of
judicial bodies/court throughout the procedure, in the majority of its stages.
Consequently, the law does not completely favor the debtor, but also does not give
creditors advanced protection. However, more than in other countries, French
insolvency law involves rescuing bankrupt companies to protect employees (Blazy et
al., 2011).
French originated laws are in force in Italy, Spain, Portugal, Belgium and
Netherlands. Unlike in France, in all these countries the guaranteed creditors are the
first whose claims are covered.
Spain has opted for a debtor-orientated insolvency system. However, creditors who
have warranties for their debt enjoy some protection. The 2003 reform in this area
introduced the possibility of declaring insolvency in case of imminent insolvency, as
in Germany.
In Belgium, like in other European countries, bankruptcy law has suffered multiples
changes. The major reform took place in 1997, when the new law replaced the old
code from 1853. This pursued the implementation of strategies to promote
reorganization following the model of countries like the United States of America,
France and United Kingdom (Dewaelheyns and Van Hull, 2009).
Sweden and Denmark, as Finnish law, have Scandinavian origins.
In Finland there are two legislative regulations governing the procedures to put in
place in case of financial difficulties: Finnish Bankruptcy Act and Finnish Company
Reorganization Act.

The second norm was adopted as a result of major growth in the number of bankrupt
companies in the period 1990-1992 (Laitinen, 2011). It aimed to promote
reorganizations for viable companies, especially given that in 96.8% of the
liquidations in Finland creditors have received nothing (Sundgren, 1998). Therefore,
the adoption of new regulations encouraged reorganizations.
In the period 1993-2007 there were 4.842 applications submitted for reorganization
and 39.778 requests for bankruptcy, so more than one tenth of all requests were
directed to recover the distressed companies.
However, Laitinen (2011) states that, on average, 60% of the reorganization requests
are accepted by the court, 75% of them manage to formulate a reorganization plan to
be accepted and between 40 and 50% of companies who have an accepted plan have
successfully implemented it. Finnish Bankruptcy Act also regulates consumers
bankruptcy.
Figure 2. Western European countries' insolvency weight
Portugal
Ireland 3,13%
0,93%
Italy
6,64%

Spain
Sweden
2,90%
4,56%

Belgium
5,84%

United Kingdom
10,75%

Germany
19,50%

Other
10,86%

Austria
4,04%
France
31,02%

Denmark
3,92%
Finland
1,74%

Netherlands
4,46%
Luxemboug
0,56%

Given the large number of insolvent companies in France and Germany compared to
other EU countries, if we compare them with only the countries in Western Europe we
will have even a greater impact. In these two countries there are more than half of the
firms in insolvency proceedings from the region. Third place in the top of the states
with most companies in any stage of insolvency proceedings is taken by United
Kingdom.
However, if besides the previous information about number of insolvencies we also
consider the rate of insolvency for each of these countries, we state that in France and
Germany the situation is not bad.
Insolvency rates in these countries are diminishing and in France this ratio has in 2010
a value with 40% lower than in the previous year.

Figure 3. Variation
Variation of insolvency rate in Western Europe
3,50%
3,00%
2,50%
2,00%
1,50%
2009
1,00%
2010
0,50%
0,00%

Italy, Ireland, Portugal,, Sweden and Denmark are among the Western European
Europe
countries that had increases in the number of insolvent companies in 2010. The graph
below (Figure 4) clearly shows the position of each
each country in Western Europe.
Major variations are due to economic recession. Member States had different
reactions to the current economic phenomena, which explains variations of different
levels in these countries.
Figure 4. Changes
nges in the number of insolvency cases in 2010 in Western Europe
(%)
50,00
40,00
30,00
20,00
10,00
0,00
-10,00
-20,00
-30,00
-40,00

ly because the
In Germany the reduction in insolvency cases occurred especially
economic situation improved in the second semester of 2010.
Other variables that are connected to insolvency
insolve
are the rate of new firm entry and the
time to complete bankruptcy procedure.
procedure. The values for the two are presented in the
Table 2.

Table 2. Average of rate of new firm entry and time to complete bankruptcy
procedure in Western European countries
Country
Austria
Belgium
Denmark
Finland
France
Germany
Ireland
Italy
Netherland
Portugal
Spain
Sweden
United Kingdom

New firm entry rate (%)

0,08
0,07
0,10
0,08
0,08
0,17
0,05
0,08
0,09
0,09
0,10
0,07
0,13

Time (years) spent on bankruptcy

1,1
0,9
3,2
0,9
1,9
1,2
0,4
1,3
1,1
2,0
1,0
2,0
1,0

Source: Lee et al., 2011: 511

Characteristics of national regulations on insolvency and bankruptcy also affect the

possibilities of setting up new enterprises. Data about the rate of new firms from the
above table was taken from Organization for Economic Co-operation and
Development (OECD) and the rate is calculated for each country as a ratio between
the number of companies founded in a year and the number of active firms in the
previous year. In the above table the value of rate of new firms is calculated as an
average for the years 1990-2008.
The highest rate of new companies is recorded in Germany (the value of this rate is
0,17), which shows that German legislation favors the development of
entrepreneurship.
The average time elapsed from the entering of a company in bankruptcy procedure to
its completion is presented in the last column of the above table. Data was taken from
World Bank.
A bankruptcy procedure is, on average, the longest in Denmark. Note that both values
are minimal for Ireland.
1.2. Insolvencies in Central and Eastern Europe
Central and Eastern European countries are countries with a developing economy,
trying to assume models from developed countries to better adapt to economic
changes. Therefore, these countries have regulations inspired by laws from other
countries. As an example we give the Romanian legislation, which is based on the
French model, or the Polish one, with the foundation for insolvency regulations in the
German law.
However, there still are parts of insolvency proceedings that regulations in emerging
countries do not deal with and the involvement of state it too high; the state
introduced exceptions or special rules in the procedure.
In Bulgaria, Czech Republic and Slovakia insolvency procedure is applied only to
commercial agents (Dianu et al., 2004). Insolvency process is often caused by lack

of liquidity. However, some national laws add other criteria that may lead to opening
the procedure. These criteria are listed in the table below:
Table 2. Criteria for filing for insolvency procedures
Country
Bulgaria
Czech Republic
Hungary
Poland
Romania
Slovakia

Lack of
liquidities

Over
indebtedness

Imminent insolvency
-

Source: Balcerowicz et al., 2003: 12

As seen, in all these countries (Romania, Bulgaria, Poland, Hungary, Czech

Republic and Slovakia), lack of liquidity and inability of companies to pay their
current debts are the main criteria for a company to file for insolvency. In Hungary,
this is the only reason that may cause the opening of such proceedings.
Filing for insolvency proceedings in a case of over indebtedness is a success in
Germany. However, in emerging markets, the establishment of such a situation is
difficult because of the differences between market value and book value of assets
(Dianu et al., 2004). In Romania this criteria is not valid for the beginning of an
insolvency procedure.
In case of imminent insolvency the debtor is favored by an insolvency procedure,
having a chance to recover. Therefore, some national legislation introduced this
criterion when filing for insolvency, hoping to encourage reorganization at the
expense of liquidation.
In the reorganization process from Poland and Hungary maintaining the management
is preferred to successfully complete this procedure. In Czech Republic this is done in
an opposite way and managers are being replaced by expert liquidators or
administrators (Dianu et al., 2004).
Related to the guaranteed creditors, we can say that their rights are not fully respected.
Although they usually are the first whose claims are covered, in countries like
Hungary, Czech Republic or Bulgaria public debts are fully paid before the ones to
guaranteed creditors. The same is done in Poland and Slovakia, with the difference
that in these countries debts to the state are only paid in certain proportion and not
entirety (Balcerowicz et al., 2003).
In Central and Eastern European countries mentioned above both the debtor and the
creditors have the right to request the opening of insolvency proceedings; the same in
Slovenia. If the debtor is the one requesting insolvency he will be protected by this
procedure.
In Czech Republic, if the application for insolvency is made by a creditor, the debtor
has the right to ask the court to delay the process for a maximum of three months
period during which he will prepare (Brewerton and LeMaster, 2004). A creditor that
requires opening of the procedure against a solvent debtor will be fined in this
country, as in Estonia.
The Latvian insolvency law is not well structured. The law does not mention any
specific time limit that separates the state of solvency from the insolvent one; in

addition, anyone can ask the entrance of a company into insolvency procedure.
procedure In case
of reorganization, this process can not exceed a period of two years.
Figure 5. Changes in the number of insolvency cases in 2010 in Central and
Eastern Europe (%)
40,00
30,00
20,00
10,00
0,00
-10,00
-20,00
-30,00
-40,00

If we compare the graph above, regarding Central and Eastern Europe,

Europe with the
correspondent one on Western Europe,, we can immediately draw the conclusion that
the situation of countries in Central and Eastern Europe is more difficult, many of
them having in 2010 higher insolvency rates than in the previous year.
Figure 6. Insolvency rate (%) in Central and Eastern European countries
4,00
3,00
2,00
2009
1,00
2010
0,00

Although within the emerging countries included in this study Poland is the largest
one, with a significant
nificant number of active companies compared to the other countries,
insolvency rate is, in the last two years, the smallest
small (approximately 0.02%, both in
2009 and 2010).
Romania and Bulgaria, the last countries that joined the European Union, have the
highest
hest rates of insolvency.
insolvency. This reflects that, in an attempt to develop, these countries
have failed to integrate in this regard.

In Romania, the number of insolvent companies registered in 2010 increased over

2009 with over 15%. According to Coface Romania,
Romania, at the end of 2010, the number
of companies in general insolvency
insolve
procedure was 9.947; the firms in a simplified
procedure of insolvency were 5.104 and 702 companies were insolvent. In addition,
5.482
482 companies were in bankruptcy proceedings and 27 in the judicial
reorganization, leading to a total of 21.262
21 262 companies in various stages of insolvency
proceedings.
Figure 7. Time (years) spent on bankruptcy in Central and Eastern Europe
1,20

Latvia

2,20

Greece

4,80

Slovakia
3,20

Romania
1,50

Poland

2,00

Hungary

9,20

Czech Republic
3,80

Bulgaria
0

10

The above chart shows the differences in terms of time spent to complete an
insolvency procedure. Major discrepancies are explained by the ability or inability of
the legal system of each of the emerging countries when dealing with insolvency.
insolvency
As you can see, the duration for the completion of insolvency proceedings
roceedings in the
Czech Republic is very long.
long. Among other emerging countries, Slovakia is the
country where the ending of the procedure takes the longest time.
time And even in
comparison with Slovakia,
ia, in Czech Republic this length is almost double.
double
Major involvement of judicial bodies in the enforcement of each of the stages of
insolvency proceedings extends the period of time in which a procedure can be
completed.. Therefore, it would be ideal
id to modify the procedures by introducing the
possibility for insolvencyy experts to become more involved in the process (Dianu
(D
et
al., 2004).
2. EMPIRICAL ANALYSIS
Evolution of corporate insolvency for European Union countries is analyzed in this
paper. As an exception, Cyprus and Malta are not included in the study due to the lack
of information about these countries. Insolvency statistics for the 25 countries
included in this study are provided by Coface Central Europe Holding AG and
Creditreform.
A factorial analysis of correspondences aims to find the connections between
variables and helps to describe these connections.. The main objective of a factorial
analysis of correspondences is the simultaneous study of lines and columns of a
contingency table in order to highlight the connections and correspondences between
the two (Lefter, 2004).

Contingency table below shows the number of companies in insolvency proceedings

in EU countries during 2004-2010 periods, except for Malta and Cyprus, for which
statistics have not been found.
Table 4. Correspondence Table
Country
Austria
Belgium
Bulgaria
Czech
Republic
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Ireland
Italy
Latvia
Lithuania
Luxembourg
Netherland
Poland
Portugal
Romania
Slovakia
Slovenia
Spain
Sweden
United
Kingdom
Total

Years
2007
2008
6362
6500
7690
8300
240
279

2004
6328
7836
208

2005
7136
7878
238

2006
6854
7617
183

2009
7050
9430
361

2010
6657
9620
462

Total
46887
58371
1971

2234

1808

1866

1752

3543

5396

5752

22351

2620
260
2385
40776
39270
577
7519
321
17500
1386
624
665
6648
1116
3123
3353
990
789
561
5688

2497
208
2278
41930
36850
580
8126
327
17150
647
577
682
6780
793
3300
4752
1645
733
869
5865

1987
318
2285
40360
30680
520
9575
304
8827
1516
355
634
5941
576
3400
10431
1730
577
853
5243

2400
327
2300
42670
27490
510
9843
310
5410
2000
383
680
4710
477
3350
14104
791
560
830
4890

3710
488
2660
49100
29800
530
11530
700
7130
1250
928
590
6580
411
3500
14483
567
433
2100
6300

5600
1112
3310
55800
34300
360
14971
1400
9098
2219
1844
698
10500
691
4450
18421
669
529
4900
5215

6460
1047
2870
51060
32100
355
17883
1525
10923
2705
1635
918
7340
655
5144
21262
808
377
4770
7510

25274
3760
18088
321696
230490
3432
79447
4887
76038
11723
6346
4867
48499
4719
26267
86806
7200
3998
14883
40711

12813

13462

13686

12950

14880

20300

17690

105781

165590 167111 156318 153029 176292 218624 217528 1254492

In the Correspondence Table there are calculated the totals corresponding to all rows
and columns.
To obtain the contingency table, the variables defined in SPSS were:
Country, as a string variable;
Insol2010, Insol2009, Insol2008, Insol2007, Insol2006, Insol2005 and
Insol2004 variables, all of them numeric.
Statistics for Italy can be interpreted only by taking into account the fact that until
2006 the total number of insolvencies also includes the individual units of insolvent
groups.
Second cell in second column of the Correspondences Table indicates a number of
6.328 insolvent companies in Austria in 2004.

The total number of insolvencies in European Union had a slight decrease in 2010, but
generally, the number of insolvencies in these countries has increased considerably
since 2004. In 2010 the total number of insolvencies in EU had the second highest
number in the last decade, of course, after 2009, when the crisis had a powerful effect
on corporate insolvency. Actually, the number of insolvent companies decreased in
2010 with only a percentage of 0.5%. This indicates that the effects of global
economic collapse in recent years come to an end. However, the situation did not
improve significantly.
By taking into account the total number of insolvencies in this period we can divide it
in two stages. First, the period up to 2007, that was characterized by a constant
evolution in the number of insolvencies. Second, since 2008 the economy entered into
crisis and reflected in a significant increase in the number of insolvency cases. There
is, however, a balance between countries with a positive variation in the last year and
those in which number of filing for insolvency proceedings dropped.
Although the worst of the crisis is gone, in countries such as Belgium, Bulgaria,
Czech Republic, Denmark, Hungary, Ireland, Italy, Latvia, Luxembourg, Portugal,
Romania, Slovakia and Sweden the number of insolvent companies raised.
Table 3. Row Profiles
Country
Austria
Belgium
Bulgaria
Czech Republic
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Ireland
Italy
Latvia
Lithuania
Luxembourg
Netherland
Poland
Portugal
Romania
Slovakia
Slovenia
Spain
Sweden
United Kingdom
Mass

2004
,135
,134
,106
,100
,104
,069
,132
,127
,170
,168
,095
,066
,230
,118
,098
,137
,137
,236
,119
,039
,138
,197
,038
,140
,121
,132

2005
,152
,135
,121
,081
,099
,055
,126
,130
,160
,169
,102
,067
,226
,055
,091
,140
,140
,168
,126
,055
,228
,183
,058
,144
,127
,133

2006
,146
,130
,093
,083
,079
,085
,126
,125
,133
,152
,121
,062
,116
,129
,056
,130
,122
,122
,129
,120
,240
,144
,057
,129
,129
,125

Years
2007 2008
,136
,139
,132
,142
,122
,142
,078
,159
,095
,147
,087
,130
,127
,147
,133
,153
,119
,129
,149
,154
,124
,145
,063
,143
,071
,094
,171
,107
,060
,146
,140
,121
,097
,136
,101
,087
,128
,133
,162
,167
,110
,079
,140
,108
,056
,141
,120
,155
,122
,141
,122
,141

2009
,150
,162
,183
,241
,222
,296
,183
,173
,149
,105
,188
,286
,120
,189
,291
,143
,216
,146
,169
,212
,093
,132
,329
,128
,192
,174

2010
,142
,165
,234
,257
,256
,278
,159
,159
,139
,103
,225
,312
,144
,231
,258
,189
,151
,139
,196
,245
,112
,094
,320
,184
,167
,173

Total
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000
1,000

Row profiles table (Table 5) shows the proportions of each line in each column
category. The last line, Mass shows the overall proportion of each column category.
Through the Row Profiles table we can analyze the situation of insolvencies in each
country. For example, for Austria, 13,5% of all cases of insolvency in the period
2004-2010 were registered in 2004. Large percentages, of nearly one third of all cases
of insolvency from the analyzed period were recorded in Ireland in 2010 (31,2% of
total insolvencies) and in Spain in 2010 and 2011 (32,9% of total insolvent companies
in 2010 and 32,0% in 2011). Spain is a special case, given that almost 65% of all
cases of insolvency between 2004 and 2010 that condenses in the last two years. The
number of insolvencies in this country has significantly increased in 2010 and in 2011
the number of insolvencies was not significant different from the one in the previous
year. It is noted that in most countries all percentages increased from one year to
another.
Table 4. Column Profiles
Country
Austria
Belgium
Bulgaria
Czech Republic
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Ireland
Italy
Latvia
Lithuania
Luxembourg
Netherland
Poland
Portugal
Romania
Slovakia
Slovenia
Spain
Sweden
United
Kingdom
Total

Years
2007
2008
,042
,037
,050
,047
,002
,002
,011
,020
,016
,021
,002
,003
,015
,015
,279
,279
,180
,169
,003
,003
,064
,065
,002
,004
,035
,040
,013
,007
,003
,005
,004
,003
,031
,037
,003
,002
,022
,020
,092
,082
,005
,003
,004
,002
,005
,012
,032
,036

2004
,038
,047
,001
,013
,016
,002
,014
,246
,237
,003
,045
,002
,106
,008
,004
,004
,040
,007
,019
,020
,006
,005
,003
,034

2005
,043
,047
,001
,011
,015
,001
,014
,251
,221
,003
,049
,002
,103
,004
,003
,004
,041
,005
,020
,028
,010
,004
,005
,035

2006
,044
,049
,001
,012
,013
,002
,015
,258
,196
,003
,061
,002
,056
,010
,002
,004
,038
,004
,022
,067
,011
,004
,005
,034

,077

,081

,088

,085

1,000

1,000

1,000

1,000

2009
,032
,043
,002
,025
,026
,005
,015
,255
,157
,002
,068
,006
,042
,010
,008
,003
,048
,003
,020
,084
,003
,002
,022
,024

2010
,031
,044
,002
,026
,030
,005
,013
,235
,148
,002
,082
,007
,050
,012
,008
,004
,034
,003
,024
,098
,004
,002
,022
,035

Mass
,037
,047
,002
,018
,020
,003
,014
,256
,184
,003
,063
,004
,061
,009
,005
,004
,039
,004
,021
,069
,006
,003
,012
,032

,084

,093

,081

,084

1,000

1,000

1,000

Column profiles table (Table 6) shows the proportions of each line category for each
column. The last column, Mass, shows the overall proportion of each line category.
From the Column profiles table we can analyze the situation of insolvencies for each
year. For example, in 2004 3,8% of the total number of insolvencies in the EU (except
Malta and Cyprus) has occurred in Austria, 4,7% in Belgium and so on.
It may be noted that, each year, the highest rates are recorded in France and Germany.
These countries are the ones with most cases of insolvency.
There are many countries that have less than 0,5% of all cases of insolvency from the
period in consideration, such as Bulgaria, Estonia, Greece, Ireland, Lithuania,
Luxembourg, Poland and Slovenia. In total, in these countries are recorded less than
3% of insolvent companies in the European Union. Most of them are emerging
countries.
From a crossed analysis of frequencies corresponding to the categories of the two
variables we can observe some differences between them, meaning that their
distributions are not uniform.
Table 5. Summary
Dimension
1
2
3
4
5
6
Total

Singular
Value
,196
,089
,044
,032
,026
,012

Inertia Chi Square

,039
,008
,002
,001
,001
,000
,050

Sig.

63042,887 ,000(a)

Proportion of Inertia
Accounted
Cumulative
for
,766
,766
,158
,925
,039
,963
,020
,983
,014
,997
,003
1,000
1,000
1,000

(a). 144 degrees of freedom

Summary table (Table 7) shows whether or not there are connection between the
variables considered in this study and how many axes or dimensions are required to
reflect this connection. The first column (Dimension) shows that for explaining the
relationship between the variables we need 6 dimensions or factorial axes. Only the
first two dimensions are explained in the analysis. This is because the first two
dimensions explain a proportion of 92,5% of the evolution in time and space of
European insolvencies.
Values from the second column (Singular Value) measure the relationship between
variables on each dimension. Higher values indicate a closer connection. Squared
singular values are equal to inertia and are translated into a total dispersion.
Proportion of inertia columns include the proportion in which differences are
explained by two factors. The first dimension explains 76,6% of the differences
between variables and the second dimension explains another percentage of 15,8%
from the differences between variables; together, the first two components are those
that determine differences between variables, less a 7,5% percentage. Consequently,
the next four dimensions are insignificant.
Chi Square statistic from the fourth column is used to test the null hypothesis that
there is no link between the variables exposed on lines and the one from columns.

This statistic is equal to the product of total inertia and the total number of insolvency
cases (found on the last row and last column of the correspondences table).
A Sig. value less than 0,05 indicates that there is a connection between the variables
analyzed and that means that we reject the null hypothesis.
We notice that the first factorial axis explains 76,6% of the differences between the
two variables. This result is in correspondence with the Gutman effect, which argues
that when representing the points they will form a parabola.
We specify that the data for the second dimension will be offered for information
purposes only.
Table 6. Overview Row Points
Score in
Dimension
Country

Austria
Belgium
Bulgaria
Czech
Republic
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Ireland
Italy
Latvia
Lithuania
Luxembourg
Netherlands
Poland
Portugal
Romania
Slovakia
Slovenia
Spain
Sweden
United
Kingdom
Active Total

Contribution

,037
,047
,002

-,205
-,056
,326

-,293
-,140
,254

,001
,000
,000

Of Point to
Of Dimension to
Inertia of
Inertia of Point
Dimension
1
2
1
2
Total
,008
,036 ,483 ,450
,933
,001
,010 ,244 ,703
,947
,001
,001 ,572 ,157
,729

,018

,641

,687

,002

,037

,094 ,638 ,333

,971

,020 ,529 ,600

,003 ,969 ,784
,014 ,015 -,085
,256 ,011 -,159
,184 -,378 -,037
,003 -,540 -,563
,063 ,396 ,059
,004 1,021 1,080
,061 -,911 ,577
,009 ,466 -,185
,005 ,709 1,073
,004 -,076 -,110
,039 -,030 ,240
,004 -,696 ,368
,021 ,108 -,025
,069 ,898 -,304
,006 -,805 -,508
,003 -,707 -,255
,012 1,251 1,212
,032 -,118 -,087

,002
,001
,000
,001
,005
,000
,002
,001
,012
,001
,001
,000
,001
,000
,000
,012
,002
,000
,005
,001

,029
,014
,000
,000
,133
,004
,051
,021
,256
,010
,013
,000
,000
,009
,001
,284
,019
,008
,095
,002

,081
,021
,001
,073
,003
,010
,002
,051
,226
,004
,065
,001
,025
,006
,000
,072
,017
,002
,196
,003

,356
,221
,247
,644
,004
,320
,009
,337
,151
,032
,489
,084
,273
,095
,010
,049
,087
,053
,295
,042

,967
,965
,264
,651
,987
,968
,899
,999
,980
,480
,960
,173
,282
,842
,422
,987
,569
,941
,986
,215

,084

,000

,002

,001 ,333 ,022

,354

,050

1,000

Mass

1,000

Inertia

,075

-,029

1,000

,610
,744
,018
,007
,983
,648
,890
,662
,829
,448
,471
,089
,009
,747
,411
,938
,482
,888
,691
,173

Overview Row Points table (Table 8) provides information about the role of line
categories (EU countries) in establishing a conclusion.
Mass values are the same as those in the Column Profiles table. The next two
columns represent the coordinates of each country on the chart. Inertia column shows
the extent to which each line/country participates to the total inertia. Contribution of
point to inertia of dimension shows which the dominant categories are.
Reference value to select the significant countries is:
1
25

0,04,

where 25 represents the number of countries included in the analysis

DIMENSION I
Negative values
Positive values
Germany
Hungary
Italy
Romania
Spain

DIMENSION 2
Negative values
Positive values
France
Czech Republic
Denmark
Ireland
Italy
Lithuania
Romania
Spain

Table 7. Overview Column Points

Score in
Dimension
Years

Mass

Inertia
1

Insol2004
Insol2005
Insol2006
Insol2007
Insol2008
Insol2009
Insol2010
Active
Total

,132
,133
,125
,122
,141
,174
,173

Contribution

-,703
-,636
-,156
,143
,207
,393
,472

2
,217
,128
-,343
-,562
-,173
,239
,278

,014
,011
,002
,004
,002
,007
,010

1,000

,050

Of Point to
Inertia of
Dimension
1
2
,332
,070
,274
,024
,016
,165
,013
,432
,031
,047
,137
,111
,197
,151
1,000

Of Dimension to
Inertia of Point
1
,935
,959
,253
,119
,540
,741
,781

2
,041
,018
,553
,832
,172
,124
,123

Total
,976
,976
,806
,950
,711
,864
,904

1,000

Overview Column Points table (Table 9) provides information about the role of the
column categories (years of reference) in establishing connections. Mass column
values are taken from Row profiles table. Contribution of point to inertia of dimension
shows the categories between which there are the highest differences.
Reference value for choosing the significant periods is:
1
7

0,143,

where 7 represents the number of years included in the analysis.

DIMENSION 1
Negative values
Positive values
Insol2004
Insol2010
Insol2005

DIMENSION 2
Negative values
Positive values
Insol2006
Insol2010
Insol2007

Figure 8: Row Points for Stat - Symmetrical Normalization

Row Points for Stat - Symmetrical Normalization

Spain
Lithuani
1,0

Ireland
Czech Re
Estonia

Dimension 2

Italy
0,5

Denmark

Poland

Bulgari

Netherla

Hungary
Germany

0,0

Slovenia

United K
Finland

Portugal
Latvia

Sweden
Luxembou

Slovakia

Romania

Belgium
France

Austria

-0,5
Greece
-1,0

-0,5

0,0

0,5

1,0

1,5

Dimension 1

Gutman effect can be observed the graphical representation of the results. Values
represented by the number of insolvency cases increase in the descending part of the
parable and then decrease in the ascending part of it.
The number of insolvencies was increasingly higher for countries like Spain, Ireland,
Estonia, Romania or Lithuania.
The first dimension explains the effect of the passing of the time on the economic
environment in general and on insolvency in particular. The first factorial axis
highlights the countries where the number of insolvencies in 2004 and 2005
significantly differ from the number of insolvency cases in 2010. For Germany and
Italy, the change in the number of insolvent companies from one year to another is not
significant. In Hungary, Romania and Spain significant differences between cases of
insolvency in 2010 compared to 2004 are recorded and these differences exceed the
EU average.
The second factorial axis shows a contrast between France, on the one hand, and other
countries like the Czech Republic, Denmark, Ireland, Italy, Lithuania, Romania and
Spain, on the other hand.

Figure 9: Row and Column Points - Symmetrical Normalization

Row and Column Points - Symmetrical Normalization

Spain

Lithuani Ireland

1,0

Estonia
Denmark

Dimension 2

Italy
0,5

Czech Re
Poland

Germany

0,0

Insol2010

Netherla

Insol2004
Insol2005

Bulgari
United K
Finland

Insol2009
Hungary

Portugal
Insol2008

Sweden
Luxembou
Belgium

Slovenia

France

Austria
Insol2006
Slovakia
-0,5

Latvia

Romania

Insol2007

Greece
-1,0

-0,5

0,0

0,5

1,0

1,5

Dimension 1

CONCLUSIONS
Evolution of the economy at a global, european and, of course, national level affects
the activity of companies. The present study reflects how the economic crisis in recent
years resulted in insolvency filing and exits from the market for an increasingly
number of companies.
Just by over viewing the situation, we can affirm that France and Germany, although
developed countries, have the highest values for the number of insolvent companies
every year since 2004. In this circumstance, we predict that this will also be the case
in future years. However, given the major increases in Romania and Hungary, it is
possible that the rankings of the countries with most cases of insolvent companies will
change, especially considering that the two countries are emerging countries with an
unstable economic environment. The increases in Romania and Hungary, together
with the information obtained through this study that change in the number of
insolvencies in Germany is not significant, supports the affirmation that the rankings
for the first countries will change in time.

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