OFCE Policy Brief 76; We simulate the impact of the Covid-19 crisis on corporate solvency using a sampleof around one million French nonfinancial companies, assuming they minimizetheir production costs in the context of a sharp drop in demand.We find that the lockdown triggers an unprecedented increase in the share ofilliquid and insolvent firms, with the former more than doubling relative to a No-Covid scenario (growing from 3.8% to more than 10%) and insolvencies increasingby 80% (from 1.8% to 3.2%).The crisis has a heterogeneous effect across sectors, firm size, and region. Sectorssuch as hotels and restaurants, household services, and construction are the mostvulnerable, while wholesale and retail trade, and manufacturing are more resilient.Micro-firms and large businesses are more likely to face solvency issues, whereasSMEs and medium-large firms display lower insolvency rates.The furlough scheme put forward by the government (activité partielle) has beenvery effective in limiting the number of insolvencies, reducing it by more than1 percentage point (approximately 12,000 firms in our sample).This crisis will also have an impact on the overall efficiency of the French economicsystem, as market selection appears to be less efficient during crisis periods relativeto “normal times”: in fact, the fraction of very productive firms that are insolventsignificantly increases in the aftermath of the lockdown. This provides a rationalefor policy interventions aimed at supporting efficient, viable, yet illiquid firmsweathering the storm. We evaluate the cost of such a scheme aimed at strengtheningfirms' financial health to around 8 billion euros.