Liquidations plummet to levels seen before 2007

The number of liquidations in plummeted in May with figures showing a fall of 72,1% from 384 to 107 year-on-year.

LIQUIDATION and personal insolvency figures are moving back towards their pre-2007 levels after rising during the recession.

The number of liquidations plummeted 72,1% year on year in May, from 384 to 107. Voluntary liquidations contributed most to the drop, falling 78,2% from 354 to 77, Statistics SA data showed yesterday.

The percentage change from March to May this year was 37,2%. These levels were last seen before January 2007, prior to the global financial crisis, and do not include the effects of the Companies Act’s business rescue provision.

"This figure ( 37,2%), combined with a 40% drop in year-on-year April 2011 insolvency statistics, points to the view that the economy is moving back to pre-economic crisis levels, which is incredibly encouraging," Adam Harris, a director in law firm Bowman Gilfillan’s insolvency and restructuring department, said in Cape Town yesterday.

But some analysts are cautious about whether the figures will reflect a fall for a sustained period. "The 72,1% year-on-year fall ... exceeded all of our expectations and although due largely to a 78,2% fall in voluntary liquidations, we caution against overt optimism," Credit Guarantee GM Roger Munitich said.

The state’s business rescue measures, which came into effect on May 1, did not affect the latest statistics.

"Business rescue, which was designed to provide an alternative model to liquidations … is not yet a factor in these statistics," said Mr Harris. "We expect it to feature more prominently in this area in the next few months and to reduce the number of liquidations even further."

The Companies Act, which also came into effect on May 1, allows for proceedings to rehabilitate a company in financial distress , including temporary supervision and management of the company’s affairs. Property company Pinnacle Point Group was one of the first companies to file for a business rescue under the act.

Mr Munitich said only a few sectors fared poorly in the January to May period. He said mining and quarrying saw 15 failures, compared with eight in the first five months of last year. Electricity, gas and water had five liquidations, against three a year earlier. Transport, storage and communication had 90 closures compared with last year’s 54. The community, social and personal services industry saw 247 liquidations, versus 153 last year.

The insolvency figures, which are a month behind the liquidation figures, were also encouraging, Mr Harris said. Insolvencies for April had been reduced to a level last seen before November 2007.

"This statistic points to two essential facts: the last time the level of insolvencies was so low was four years ago and this occurred before the global financial crisis. If you were an optimist you would conclude that we have survived the crisis and are back to where we were pre-2008."

Source: www.businessday.co.za

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