Decline in Number of Liquidations

According to Statistics SA, the total number of liquidations recorded for July 2010 dropped by 34.3% year-on-year to 281 cases.The total number of liquidations recorded for the first seven months declined by 1.4%to 2 346 cases.

The highest number of liquidations experienced during the first 7 months of 2010 related to enterprises in the financial, insurance, real estate, and business services, wholesale, retail, catering and accommodation sectors, Statistics SA indicated. During this period, close corporation liquidations decreased by 5.3% while company liquidations increased by 3.2%.

Statistics SA said the total number of insolvencies for the first half of the year decreased by 27.8 % year-on- year to 1909 cases while the estimated number of insolvencies in June 2010 declined by 37.1% to 351 cases. Liquidation may be by a Court Order or voluntary and refers to the process whereby the affairs of a Company or Close Corporation is wound-up when its liabilities exceed its assets. Insolvency occurs when an individual or partnership cannot service its debt and is placed into sequestration.

According to Azar Jammine, a Senior Economist at Econometrix many small, medium enterprises and households were paying less interest on borrowings because of lower interest rates. During August 2010, the South African Reserve Bank kept its repro rate unchanged. South Africa had experienced seven interest rate cuts since December 2008.

Stanlib Senior Economist Kevin Links said that many small business enterprises had used up their cash resources during the 2009 devastating global economic downturn and when orders ultimately started improving and they approached the Banks for credit, they found the latter reluctant to lend.

The decline in liquidations may be an indicator that the South African economy may again be growing, albeit at a slow rate.

Pieter Rautenbach