It has been a very bad year for businesses in South Africa.
According to Statistics SA, business liquidations soared by 44.8% in the year to August 2022.
In the preliminary Statistics of Liquidations and Insolvencies report, the government noted that “the total number of liquidations increased by 9.8% in June 2022 compared with June 2021.
There was a decrease of 2.1% in the second quarter of 2022 compared with the second quarter of 2021.
The total number of liquidations decreased by 6.4% in the first six months of 2022 compared with the first six months of 2021.”
Total liquidations according to industry
BUSINESS RESCUE
According to a statement by Werksmans Attorneys, fewer businesses entered business rescue and this is a sign that many companies are assessing their financial positions too late.
Director and head of the Business Rescue, Restructuring and Insolvency practice at Werksmans Attorneys, Dr Eric Levenstein said, “Even though 2022 is far from over, there are significantly fewer new business rescue proceedings so far this year compared to last year.
“According to the Companies and Intellectual Properties Commission (CIPC), only 63 companies have entered business rescue in the year to June 2022, 80% of which are private companies and 15% are close corporations.”
Werksmans Attorneys also noted that in the year to June 2021, 279 companies entered business rescue in South Africa, while in 2020 the number was 206.
“Despite fewer companies entering business rescue, there have been 15 notices of substantial implementation of the adopted business rescue plan filed last year, indicating that business rescue remains a viable option for financially distressed companies,“ Levenstein said.
“In August this year alone, more than triple the number of companies was liquidated, than were placed in business rescue.
“This indicates that companies may be assessing their financial position too late, concluding that there is no reasonable prospect of a successful rescue. These companies had little alternative but to file for liquidation.”
SOME ADVICE FOR SMALL BUSINESSES
The government has always said that small businesses are the backbone of the South African economy.
It is therefore important to try to help these companies stay solvent and resilient, especially after the impact of the Covid-19 pandemic.
Jim Magats, senior vice president of Omni Payments at PayPal, provides some great tips for small businesses.
1. Create a smooth (front and back end) omnichannel experience.
2. Foolproof your business and customers’ information with robust fraud protection measures.
3. Provide customers with alternate and flexible payment options.
4. Collaborate with trusted partners to stay focused on the business.
5. Make data-driven decisions.