Business bankruptcies jump as wave of failure speeds up

WASHINGTON: Going bankrupt happens slowly, then all at once, to paraphrase an old saying. For businesses of all sizes, all at once is happening now.

This week is tied for the busiest threeday period for major corporate bankruptcies on record, according to data compiled by Bloomberg.

If the pace continues through Saturday, the week will top the end of April, 2009 when 16 big companies went bankrupt just as the United States was climbing out of the Great Recession.

Total bankruptcies – including consumer, small business and big corporates – have been climbing steadily for 20 months, said Michael Hunter, vice-president at Epiq, a legal services company that tracks insolvency filings. The trend reflects higher interest rates and a pullback in consumer spending, he said in a statement.

Since Sunday, nine companies filed big Chapter 11 cases including two telecommunication and two pharmaceutical companies. Five of the cases were filed in Delaware, which is one of the main hubs for restructuring cases, in part because so many companies are incorporated there.

At least three of the cases – a window maker backed by Softbank and two telecommunication companies – negotiated deals with lenders before seeking bankruptcy.

Such pre-bankruptcy deal-making has become standard in corporate restructurings and is designed to cut costs and reduce the time a company must remain under court supervision.

A jump in business cases doesn’t necessarily mean the economy is in trouble, said bankruptcy lawyer Derek Abbott, with Morris, Nichols, Arsht & Tunnell.

Abbott has seen a jump in restructuring work in recent months even though the United States managed to dodge predictions it would fall into recession as the Federal Reserve hiked interest rates.

“We have such a broad and diverse economy that even when there is good stuff happening overall, there is a portion of the business sector that is still struggling,” he said. Telecom, retail and pharmaceutical companies are all facing headwinds today, Abbott said.

Commercial insolvencies jumped 43% in the first three months of 2024, compared with the same quarter last year, according to Epiq.