Stats SA has published the latest liquidation data for South Africa, showing that company liquidations shot up over 30% in December 2022 year on year – although overall closures for the full year were slightly lower than the year before.
According to Stats SA, South Africa saw 159 liquidations in December 2022, up 30.3% from December 2021.
Most of the liquidations were voluntary (V), with only seven being compulsory (C) or ordered closures.
For the full year, 1,907 businesses and companies were liquidated, down from 1,932 that had to shut their doors in 2021.
Most of the businesses that closed in the country were in financing, insurance, real estate, and business services, followed by trade, catering and accommodation.
The community, social, and personal services industries were also hit hard by liquidations – but a large portion of companies that shut down were also unclassified.
According to the director and head of the insolvency and Business Rescue Practice group at Werksmans Attorneys, Dr Eric Levenstein, the data from 2022 paints a bleak picture for businesses in 2023, with the year already off to a rocky start for many in the face of extended periods of blackouts due to load shedding.
With the prospect of higher interest rates, low growth and still high inflation, many companies already face corporate failure at the start of the year, he said.
“Insolvency and business rescue practitioners will be kept busy as financial distress continues to have an impact on companies not being able to generate sustainable revenue in continued challenging trading conditions,” Levenstein said.
Speaking to 702, Levenstein noted that the impact of relentless load shedding alone – and the cost of mitigating strategies – inevitably mean that some companies won’t be able to generate sustainable revenue.
The problem of trying to mitigate load shedding hits businesses across all sectors, with major corporations and JSE-listed groups flagging millions of rands needed to be spent on generators, fuel and solar installations to keep operating.
With small businesses, these pressures are exponentially worse, where often the only option is to trade or liquidate.
Levenstein said that with the continuous load shedding and coming tariff hikes, the risk of business closure is high for many SMEs in the first few months of the year – especially small family businesses that are less likely to seek out business rescue options.
“If there is no improvement in energy and the big increases come through, the cost factor in making businesses successful is extremely high, and the risk of business failure mounts,” he said.
The Department of Small Business Development said last week that it is working on an energy relief package for SMEs; however, there have been no details on what this would entail, how it would be implemented or who would qualify.
President Cyril Ramaphosa, meanwhile, has asked the Eskom board to consider holding off on the 18.65% electricity price hike planned for April 2023. However, given Eskom’s own financial straits, it is unlikely that this would be a viable route for the ailing utility.
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