Drop in number of insolvencies suggests worst may soon be over

2013-02-27 00:00

THE continued decrease in the number of insolvencies as reflected in the latest statistics by Stats SA yesterday, offer signs of encouragement that the worst might soon be over.

Insolvencies refer to individuals, partnerships or trusts placed under final sequestration after being unable to pay their debt.

Insolvencies dropped by 17,2% between January and December last year, and by 15,9% in the fourth quarter of last year compared with the same period in 2011.

Adam Harris, director of the litigation department at pan-African legal services group Bowman Gilfillan, said that insolvency statistics relating to individuals and partnerships offer signs of encouragement.

“The statistics indicate fewer court orders against people unable to service their debt. This suggests that the financial standing of consumers seems to be improving as is their ability to handle debt,” said Harris.

The trend with insolvencies has been downward for some time. At the peak of the financial crisis there were 6 078 insolvencies for 2009, 3 536 for 2011, and 2 928 for 2012. However, where companies are concerned, the number of liquidations in January 2013 was 22,5% higher year on year than in January 2012.

Stats SA said the surge was due to voluntary liquidations which increased by 74,1%, with 103 more liquidations.

A compulsory liquidation takes place when a company or close corporation is wound up by an order of the court when liabilities exceed assets, or the entity is unable to pay its debts as and when they fall due for payment.

A voluntary liquidation happens when a company resolves of its own accord to wind up its affairs.

On reasons for the year-on-year increase in voluntary liquidations, Harris said: “This trend is concerning, and appears to be contrary to the trend line which we have been tracking for some time.”

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