[Exclusive] Monthly COVID-19 Cases Drive Surge in Bankruptcies... 'Coupling Phenomenon' Emerges

2018-2020 Nationwide Corporate Bankruptcy Status Reviewed
Bankruptcy Filings Surge Each Time COVID-19 Resurges

[Sejong=Asia Economy Reporters Kim Hyunjung and Jang Sehee] It has been revealed that corporate bankruptcy filings increased alongside surges in confirmed COVID-19 cases last year. The average increase rate of corporate bankruptcy filings in March, August, and September?periods immediately following COVID-19 resurgences?exceeded 50% compared to the same months in the previous year. Despite the government’s emergency measures such as releasing policy funds and extending repayment deadlines for financial institutions, COVID-19 nonetheless pushed some companies to the brink.

On the 4th, an analysis of the '2018?2020 Nationwide Corporate and Personal Bankruptcy Status (January to October)' data, obtained by Kim Do-eup, a member of the People Power Party, from the Court Administration Office, showed that in March last year, when confirmed cases approached 7,000, corporate bankruptcy filings surged by 53% year-on-year to 101 cases. This contrasts with April and May, when monthly confirmed cases were below 1,000 and corporate bankruptcy filings either decreased by 20% or increased by only 5%.

During the second wave in August and September, monthly confirmed cases soared to 5,642 and 3,865 respectively, and corporate bankruptcy filings also rose to 86 and 104 cases. These figures represent increases of 43.3% and 60.0% compared to the same months in the previous year. This indicates a coupling phenomenon where bankruptcy filings rise in tandem with the number of COVID-19 cases.

The approval rate in April last year increased by 47.0 percentage points compared to the same month the previous year, and by 45.8 percentage points in October. Regarding this, a Court Administration Office official explained, "The increase in corporate bankruptcy filings and approvals last year can be interpreted as being influenced by COVID-19." Bankruptcy-specialized lawyers who counsel debtors on the front lines also unanimously agree that "corporate bankruptcies last year were predominantly caused by the COVID-19 crisis." It appears that export and service sectors were particularly hard hit. Attorney Kim Bong-gyu of Moon & Kim Law Office stated, "Last year, export and service sectors dominated bankruptcy filings," adding, "Not only the travel industry but also sectors focused on face-to-face services such as dining, sports, and manpower dispatch companies stood out."

Meanwhile, due to the economic downturn, corporate bankruptcy filings have been increasing annually even before the COVID-19 crisis. Looking at the numbers by year, there were 668 cases in 2018 (January to October), 769 cases in 2019, and 879 cases in 2020, showing an increase of around 15% recently. The number of approvals leading to actual bankruptcies, based on court decisions after each corporate filing, reached 552 cases (approval rate 78.1%) in 2018, 660 cases (85.8%) in 2019, and 733 cases (83.4%) in 2020.

Professor Sung Tae-yoon of Yonsei University’s Department of Economics emphasized, "The worsening corporate bankruptcy figures in 2019, which had already been deteriorating, indicate that the real economy was directly impacted," adding, "As the government’s policy fund recovery and principal and interest repayment deferrals come to an end, the situation could worsen much more rapidly."