Liquidations, insolvencies up

2008-04-01 00:00

Companies and individuals across South Africa are feeling the pinch of tightened economic conditions, as the numbers of liquidations and insolvencies are beginning to rise significantly in 2008.

The total number of liquidations recorded for the two months ending February 2008, increased by six percent year on year to 390.

This was fuelled by a 63% year-on-year increase in compulsory liquidations during the same period.

In addition, the total number of liquidations recorded for February 2008 increased by 19,8% year on year to 230.

However, it is important to note that many companies and individuals seem to be managing their finances relatively well under challenging economic conditions, particularly in comparison with figures of liquidations and insolvencies recorded in 2002 and 2003 under similarly difficult conditions for consumers and certain business sectors.

The latest figures emerge out of a Statistics South Africa survey, which covers the total number of companies and close corporations that were liquidated and the total number of individuals and partnerships placed under final sequestration.

The businesses that appear to be under the most pressure are financing, insurance, real estate and business services.

These businesses have in all probability been negatively affected by the National Credit Act, which came into effect on June 1, 2007, and higher interest rates.

Wholesale, retail, catering and accommodation also came under pressure, largely as a result of higher interest rates and a general consumer slowdown.

The manufacturing sector also experienced a number of liquidations during January and February 2008, possibly in part as a result of the electricity crisis.

Insolvencies refer to an individual or partnership that is unable to pay its debt and is placed under final sequestration, while liquidation refers to the winding-up of the affairs of a company or close corporation when liabilities exceed assets.

The latest statistics come on the back of recent news that the number of civil cases for debt continued to decrease during the final quarter of 2007, suggesting that a significant percentage of consumers and businesses have not over-extended themselves.

The number of civil judgments for debt for the three months ending January 2008, decreased by 15,1% year on year.

In addition, the number of civil summonses for debt dropped by 15,3% year on year during the same period.

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