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(Bloomberg) — To paraphrase an old saying, bankruptcy happens slowly and then suddenly. Everything is happening at the same time in companies of all sizes.
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This week tied for the most three-day period for large corporate bankruptcies on record, according to data compiled by Bloomberg. If this pace continues into Saturday, that week will surpass the number at the end of April 2009, when 16 large companies went bankrupt just as the U.S. was emerging from the Great Recession.
The number of bankruptcies involving consumers, small businesses and large corporations has steadily increased over the past 20 months, said Michael Hunter, a vice president at Epic, a legal services firm that tracks bankruptcy filings. He said in a statement that the trend reflects rising interest rates and falling consumer spending.
Since Sunday, nine companies have filed major Chapter 11 lawsuits, including two telecommunications companies and two pharmaceutical companies. Five of the cases were filed in Delaware, one of the main hubs for restructuring litigation because so many companies incorporate there.
At least three of the companies — a teller manufacturer and two telecommunications companies backed by SoftBank — negotiated deals with lenders before filing for bankruptcy. Entering into such pre-bankruptcy deals has become the norm in corporate restructuring and is intended to reduce costs and shorten the amount of time a company must remain under court supervision.
Derek Abbott, a bankruptcy attorney at Morris, Nichols, Arsht & Tunnell, said a spike in corporate litigation doesn’t necessarily mean the economy is in trouble. Mr. Abbott has seen a surge in restructuring efforts in recent months, even as the U.S. managed to avoid predictions that the Federal Reserve’s rate hikes would push the economy into recession.
“Our economy is so broad and diverse that even though good things are happening overall, some parts of the business sector are still struggling,” he said. Abbott said telecoms, retail and pharmaceutical companies are all currently facing headwinds.
Commercial bankruptcies rose 43% in the first three months of 2024 compared to the same period last year, according to Epic. Hunter said the number of applications is likely to continue increasing for the rest of the year.
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