Swiss liquidators ramp up hiring as zombie firms face wave of COVID bankruptcies

By John Revill

ZURICH (Reuters) - As employers shed and furlough staff in an effort to stay afloat during the COVID-19 pandemic, one employer in Switzerland has launched a recruitment drive - the Zurich liquidation service.

In an ominous sign of what could lie ahead, the service has quadrupled the number of staff who visit shuttered companies, take inventory and collect assets which can be sold to pay creditors.

The Ascot Hotel and Swissotel in Zurich are among businesses which have already permanently closed after bookings evaporated. Other hotels, restaurants and bars are among those on the brink as government support measures wind down.

Beat Vogt, leader of the notaries service at the government-run Zurich liquidators service, said they were bracing for an expected increase in the number of liquidations next year, hiring 12 new staff who started training in November.

"It will be so significant that our system wouldn't be able to cope without the extra support. We have to be prepared."

The number of bankruptcies in 2020 is, however, a fifth lower than in the previous three years, according to Creditreform, the Swiss association of creditors, as emergency credit guarantees and deferrals on companies' social security payments helped them through the early stages of the pandemic.

Switzerland is illustrative of the story playing out across Europe, with countries such as Britain, France and Spain also recording sharp falls in insolvencies this year. The German Institute for Economic Research (DIW) is also forecasting significant rise in insolvencies in Europe's largest economy next year after a decline this year.

"It's a Europe-wide situation where companies have been supported by such measures, but some of these are coming to an end. As a result there are now likely to be more insolvencies next year - Switzerland is not alone in reducing its measures," said Jan-Dominik Remmen at Deloitte.

REFINANCING RISK

In Switzerland, measures such as the temporary lifting of an obligation to report excessive debts have now expired.

"The number of companies that have collapsed so far in Switzerland is just the tip of the iceberg," said Creditreform President Raoul Egeli.

"There are lots of companies here which are just zombie companies," he added, referring to companies which would struggle to cover their debt payments in normal times.

Egeli expects higher-than-average Swiss bankruptcies next year, while Peter Dauwalder, head of restructuring at KPMG, said the number could double to 800 cases per month with the crisis accelerating structural change in many sectors.

Sixty percent of Swiss companies were experiencing weaker demand a recent survey by the KOF Swiss Economic Institute showed, while 10% feared for their survival.

Deloitte's Remmen also noted a "good" number of bonds and credit facilities needed refinancing next year, with risk premiums generally significantly higher than pre-COVID levels and refinancing costs more than doubling towards the lower end of the credit spectrum

"There will be liquidations or insolvencies if a company is no longer able to carry its debts and cannot secure fresh funds."

Meanwhile, Zurich's Vogt is braced for a busy start to 2021.

"It's a question of when and how the bankruptcies happen rather than if," Vogt said. "It's our aim to be ready for whatever happens."

(Reporting by John Revill; Editing by Kirsten Donovan)