Excess debt is the main cause of most insolvencies in Romania, according to an analysis made by Casa de Insolventa Transilvania insolvency specialists. Half of the companies that went insolvent in the last two years were overly indebted. Management mistakes and a drop in consumption come second and third, and were each found in 43 percent of the cases. The review covered 650 insolvency cases and the initial report made by the insolvency firm for each of them. In most cases, insolvency comes as a mix of causes, usually 2 or 3 factors, including management errors and external factors, according to Rudolf Vizental, managing partner of Casa de Insolventa Transilvania.

In the majority of cases – 90 percent – the management sees or admits insolvency long after the situation occurs, and usually 18 months after that point, which drops the chances for the company to get back on track, according to Vizental.

Continued losses come fourth among the main reasons for insolvency, while being part of a group of companies comes firth, having appeared in 9 percent of the cases. A drop in consumption usually affects retail companies, while the lack of profit, companies in production. In 4 percent of the cases, losing the main contract, unfair competition or the death of the main shareholder led to insolvency.

The rate of insolvencies in Romania is one of the highest in the region, according to a new study by consultancy firm Coface. Last year, 23,665 Romanian companies went insolvent and the number is set to rise by 10 percent in 2013.

Romania ranks second in Central Europe for insolvencies, with a rate of 5.67 percent of the total number of active firms, which number close to 420,000. Only Serbia has a higher rate, where the number of insolvencies out of the total number of active firms is 7.93 percent.

editor@romania-insider.com