Cape Town - As data from Statistics South Africa (Stats SA) on liquidations and insolvencies for January 2022 reveals, the number of liquidations remain a concern, and although there has been a decrease year on year, the number of company liquidations has risen.
Risk experts have continued to caution consumers about unethical liquidation practices in South Africa.
In an article published on its company blog, niche liability and surety brokerage Shackleton Risk Management said that historically, and even currently, “some liquidators, banks and auction houses have resorted to unethical, fraudulent or corrupt business practices in order to generate benefits from liquidations”.
Shackleton Risk wrote that one of these methods included the use of the kickback payment scheme, which was an illegal payment intended as compensation for preferential treatment, or to gain work or benefits from the liquidation.
“The kickback may be money, a gift, credit, or anything of value. More and more we see influential creditors persuading liquidators to make use of their service providers.”
Legally, the appointment of a provisional liquidator is done through the creditors signing requisitions in support of a specific liquidator, known as the requisition system.
“The trouble with the requisition system is that it is very easy for a liquidator to be appointed if he/she has friends within the bank; these are often the largest creditors.”
Releasing the figures, Statistician-General Risenga Maluleke said: “Our data reveals that the seasonally adjusted number of liquidations rose by 6.7% month on month in January after rising by 3.3% in December.”
The Stats SA survey covers the number of companies and close corporations which were liquidated, and individuals and partnerships placed under final sequestration. Last year there were 1932 liquidations and since the beginning of this year 122 liquidations have already been recorded.
In 2020, the Lungelo Lethu Human Rights Foundation (LLHRF) brought a more than R60 billion class-action suit against South African banks they hold responsible for evictions of more than 100 000 housing bond defaulters from their properties since the Constitution came into effect in 1994. Repossessions are often a by-product of liquidations and insolvencies.
An affidavit supporting the suit found that houses had been sold for less than 50% to 60% of their market value – as in the case of the Gauteng house Nedbank sold for just R10 despite it being fully paid up and its municipal value more than R80 000.
LLHRF spokesperson King Sibiya said the banks’ habit of selling properties so much cheaper than their real value was one of the main factors that drove the foundation to the Rules Board for Courts of Law in 2014.
The LLHRF scored a victory when a full bench of the South Gauteng High Court ruled in 2018 that repossessed homes could no longer be sold at auction without reserve prices, except in exceptional circumstances.
“If I knew my house was going to be sold for as little as R10, then I would rather go next door and borrow that money from my neighbour than lose my home,” Sibiya said.