Why do companies go bankrupt?

Over the past four years, a significant number of companies in the West have gone bankrupt for various reasons. Many of these bankruptcies can be attributed to decisions to restructure balance sheets and refocus on working capital to manage market declines. Additionally, rising annual interest rates for financial and banking institutions have created significant challenges for businesses.

In the region, the bankruptcy of national companies is often due to rampant mismanagement, unfair competition against local businesses, and financial problems linked to high loan interest rates. Today, thousands of companies in Britain, the United States, Germany, Japan, and other major industrial countries are filing for bankruptcy. The Covid-19 pandemic, which disproportionately affected the poor while enriching the wealthy, was also a major factor. It led to widespread insolvency and bankruptcy due to imposed restrictions, mounting debts, and a series of global financial crises. These pressures forced many companies to reorganize, liquidate assets, and, ultimately, declare bankruptcy.

In some countries, companies struggled with soaring interest rates—the highest in recent years—and difficulty accessing new commercial loans, compounded by declining consumer demand. Thousands of Western and American companies have submitted bankruptcy applications, which, in turn, contributes to declining inflation, lower borrowing costs, and reduced anxiety among business owners. The situation is similar in Europe, Japan, China, and other countries, where many companies have also declared bankruptcy. Experts predict that this wave of corporate bankruptcies will escalate this year and next as countries enter an economic slowdown.

According to Moody’s, corporate default rates since the beginning of this year have reached 3% in Europe and 4.8% in the United States. These rates affect various sectors, including media and entertainment, consumer goods, utilities, transportation, healthcare, mining, and steel, with sector-specific variations.

Similar challenges may also affect companies in the region, including the Omani market, amid declining business activity, rising commercial loan interest rates, and difficulties faced by small and medium-sized enterprises (SMEs) in repaying debts. Furthermore, the issue of bounced checks due to reduced market activity and daily business declines is also prevalent.