BY Fraser Tennant
The prevalence of corporate bankruptcies in the US – which has been declining steadily over the past seven years – has now largely levelled off according to new figures released this week by BankruptcyData.com.
The ‘Q3 2015 Business Bankruptcy Filing Report’ – which provides a snapshot of the most recent quarter's business bankruptcy landscape – reveals that there were 22,680 corporate bankruptcy filings in the first three quarters of 2015, a 16 percent drop in comparison to Q3 2014 (26,992 filings).
Furthermore, the BankruptcyData.com report highlights the fact that there has been an average of 120 filings per business day so far in 2015, with March proving to be a particularly busy month for bankruptcies among public and private companies.
Drilling-down, the filings in the report are broken down into elements such as industry, sales volume and company size, so that insight into the most recent activity in the business bankruptcy sector can be drawn.
In terms of industry, key findings in the report include the disclosure that: (i) the service industry (the US economy's biggest employer) generated the largest percentage of overall bankruptcies in Q3 2015 with 34.78 percent; and (ii) the service industry's 2015 year-to-date bankruptcy figure of 35.95 percent is down 10 percent from the same time period in 2013, reflecting the relative health of the industry compared to other sectors like manufacturing and finance/insurance/real estate – the bankruptcy percentage figures of which have grown over the past year.
The report’s figures also highlight the recent surge in mining and energy–related bankruptcies, with the mining sector recognised as having generated 10 percent of overall bankruptcies in Q3 2015 (typically this figure is 1 to 2 percent).
Elsewhere in the report, the small business sector, often considered the ‘backbone of the economy’ in the US, is revealed as having seen the most bankruptcies in Q3 2015, with 75 percent of all business bankruptcies filed by companies with $2.5m in sales or less. Likewise, businesses with less than 50 employees generated 84 percent of all bankruptcies in Q3 2015.
Additional key findings include that for the first time in several quarters, New York has surpassed California as the state that contributes the largest percentage of overall bankruptcies, generating 14.53 percent in Q3 2015. The state of Virginia also experienced a large jump in their percentage of overall bankruptcies: moving from 1.76 percent of all bankruptcies in Q1 2015 to 7.59 percent in Q3 2015.
Whilst forecasting that the downward spiral of bankruptcies seen in recent years is likely to continue, the BankruptcyData.com report does provides a word of warning for sectors and industries: “Other factors could lead to an eventual increase in bankruptcies across all sectors: interest rates will eventually rise and reach a point at which they will prevent the small to mid-sized business owner from taking on more debt and bankruptcy will have to be considered. The number of over-leveraged balance sheets continues to grow, which means a distressed cycle may not be too far off.”