Big increase in business insolvencies in South Africa

 ·28 Sep 2021

Statistics South Africa has published its latest report on liquidations and insolvencies, with the data showing a significant increase in business insolvencies over a period marred by looting and more onerous lockdown restrictions.

South African courts impose insolvency on businesses that cannot pay their debts or whose liabilities exceed their assets.

The data shows that the estimated number of insolvencies increased by 129.7% in the three months ended July 2021 compared with the three months ended July 2020. There was a year-on-year increase of 157.7% in insolvencies in July 2021.

By comparison, seasonally adjusted insolvencies decreased by 15.8% in July 2021 compared with June 2021. This followed month-on-month changes of 389.7% in June 2021 and 26.1% in May 2021.

The data shows that the total number of liquidations decreased by 16.8% in the three months ended August 2021 compared with the three months ended August 2020.

Liquidation refers to the winding-up of the affairs of a company or close corporation when liabilities exceed assets, and it can be resolved by voluntary action or by order of the court.

A year-on-year decrease of 27.6% was recorded in August 2021. Voluntary liquidations decreased by 60 cases, and compulsory liquidations decreased by the cases.

However, the total number of liquidations increased by 12.1% in the first eight months of 2021 compared with the first eight months of 2020.

The below table highlights the business categories which reported the most liquidations for the first five months of 2021.

Of all sectors, financing, insurance, real estate, business services (427 liquidations), trade, catering, and accommodation (286) and community services (106) were the hardest hit.

Company directors say they are still pessimistic about the economic conditions facing South Africa and are increasingly concerned over a shortage of skilled labour and onerous union demands.

This was one of the significant findings in the latest Institute of Directors in South Africa (IoDSA) Sentiment Index, which gauges how South African directors view the current operating climate in the country.

The index polls the views of close to 500 directors, mainly in an executive capacity. 59% were executive directors, and 41% were non-executive directors. The survey was conducted earlier this year while South Africa was on an adjusted national level 3 lockdown.

“While directors are learning to live with the flux and mutability caused by the pandemic, most respondents still feel the uncertainty of the South African economy has impacted their business the most,” said Vikeshni Vandayar, the IoDSA’s executive of Governance and Corporate Services.

“To that end, corruption and inadequate government service delivery remain in the top-ranked challenges affecting business. Energy security is not as much of a concern as it was two years ago but still ranks highly along with inadequate government service delivery.”

Read: Skilled people leaving South Africa are creating big gaps in the workforce.

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