Liquidations decrease by 17% in May – StatsSA

The number of liquidations decreased by 9.3% in the three months ended May 2024 compared with the three months ended May 2023.

The number of liquidations decreased by 9.3% in the three months ended May 2024 compared with the three months ended May 2023.

Published Jun 27, 2024


ACCORDING to Statistics South Africa data this week, the total number of liquidations decreased by 17.2% in May compared to a year ago.

Voluntary liquidations decreased by 20 cases and compulsory liquidations decreased by six cases during this period.

The number of liquidations decreased by 9.3% in the three months ended May 2024 compared with the three months ended May 2023.

A decrease of 5.3% in the number of liquidations was recorded in the first five months of 2024 compared with the first five months of 2023.

Business rescue can save your business

To stave off liquidation, companies usually seek out business rescue to avoid this.

A recent status report from the Companies and Intellectual Property Commission highlights that, in the last quarter of 2023, 17% of the entities entering business rescue were from the manufacturing sector, with the mining sector also seeing a notable number of entities embarking on business rescue proceedings.

According to Lucinde Rhoodie, a director of Dispute Resolution from leading corporate and commercial law firm Cliffe Dekker Hofmeyr (CDH), the economy may be tough, but business rescue does not have to signal the beginning of the end.

“Early detection of distress signals and effective business rescue processes can transform a potential crisis into a story of resilience and success,” Rhoodie says.

Business rescue is a legal process aimed at rehabilitating financially distressed companies. Even so, for all its initial sparkle and progress, some assert that it is in fact “value destructive” as certain challenges have arisen during its short history.

For example, although the tariff of fees which business rescue practitioners may charge is legislated, as the adage goes – you get what you pay for. And, those practitioners who may (fingers crossed) possess the skills to actually rescue a financially distressed company will ask for increased fees – and rightfully so, as the tariff is outdated by more than a decade.

Significantly, delays in business rescue proceedings can hinder efficient recovery and the longer the business rescue process drags on, the greater the unforeseen costs and the likelihood of unintended consequences arising, which can strain distressed companies further. Some business rescue proceedings have been ongoing for almost a decade with no clear end in sight!

The success of business rescue also hinges on the financially distressed company being supervised by competent practitioners who can formulate and implement a cogent business (rescue) plan.

The right practitioner should be able to take control and manage the immediate crisis, rebuild stakeholder support, fix the business and resolve future funding. However, where practitioners lack the necessary experience and qualifications, the rescue process may suffer.

CDH says despite these challenges, business rescue remains a valuable option for distressed companies, aiming to prevent liquidation and job losses.

It can be a useful tool through which, for example, a struggling company that holds viable businesses can attract investors with its liabilities being significantly limited.

It can also be a useful tool through which a distressed company can attain a capital injection through an equity raise while renegotiating its onerous contracts, and it is especially useful when a company needs breathing space from paying its pre-business rescue debts.

Most striking is that a business rescue plan can be forced on dissenting creditors, no matter their class. How business rescue is used as a restructuring tool really depends on the practitioners and their advisers’ insight and creativity.

So, what is wrong with business rescue? Well, nothing really. Its current challenges can all be overcome by early intervention. That is, the sooner along the distress curve (or, put differently, further away from the company’s commercial insolvency) a board of a distressed company or its affected persons act to restructure the company’s finances and operations to avoid a formal process, or formally place the company in business rescue, the less messy the process, the more inclined ‘good’ practitioners will be to take on the mandate, the cheaper it is, and the more certain the prospect of rescue becomes.

– Late payment of supplier invoices, and often the withdrawal of credit lines (i.e. cash-on-delivery).

– Factoring customer invoices, meaning the “sale” by the company of some or all of its outstanding invoices to a third party as a way of improving its cash flow and revenue stability.

– Lack of leadership and of urgency.

– Declining customer service and low staff morale.

– “Right sizing” the company through retrenchments.

Nothing is wrong with business rescue, save that it is almost always initiated too late.