Firms choose help over closing up shop

FEWER companies were liquidated in the first eight months of this year compared with the same period last year, partly reflecting a willingness by executives to seek help before companies are forced to close shop.

Statistics SA data showed on Tuesday that there were 1,361 companies liquidated between January and August this year compared with 1,453 over the same period last year.

“The slight reduction in insolvent liquidations indicates that companies are probably seeking consensual restructuring of their debt and liabilities in order to avoid formal liquidations or business rescues,” Claire van Zuylen, insolvency and restructuring partner at law firm Bowman Gilfillan, said.

The fact that the number of liquidated companies remains so high reflects the weak economy and rising input costs that are making it hard for companies to operate, and also means that SA continues to bleed jobs.

Although the liquidations data for the eight months showed an improvement, the year-on-year data was not so positive. About 177 firms were liquidated in August compared with 162 last August, with most voluntary as opposed to being forced by a court of law.

Voluntary liquidations rose by 17 cases to 154 while compulsory liquidations decreased by two cases to 23.

Tough operating conditions are making it hard for companies to stay afloat. A business debt index released earlier this month by credit bureau Experian showed the financial health of local businesses in the second quarter fell to its lowest point since the start of the financial crisis six years ago.

Most of the liquidated companies were in the community, social and personal services industry, and the wholesale and retail trade, catering and accommodation industry.

The number of liquidations in the three months ended August decreased 8.5% compared with the three months ended August last year. Fewer insolvencies were recorded in July.

The decrease in insolvencies was encouraging but not an indication of an improvement in the economy, Bowman Gilfillan specialists said. The decrease was most likely attributable to individuals seeking relief and a rescheduling of debt under the National Credit Act to avoid formal sequestration, they said.

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