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Worry as more firms go bust

Feb 26 2013 15:14
debt, money


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Cape Town - The financial standing of consumers seems to be improving as is their ability to handle debt, a litigation expert said on Monday.

Adam Harris, director of the litigation department at pan-African legal services group Bowman Gilfillan was commenting on figures released on Monday by Statistics South Africa (Stats SA), which showed the number of insolvencies continued to fall.

According to Stats SA insolvencies dropped by 17.2% between January and December last year, and by 15.9% in the fourth quarter of last year compared with the same period in 2011.

The trend with insolvencies, which refers to individuals, partnerships or trusts placed under final sequestration after being unable to pay their debt, has been downward for some time. At the peak of the financial crisis there were 6 078 insolvencies for 2009, 3 536 for 2011, and 2 928 for 2012.

Harris said this downward trend is a sign of encouragement and indicates fewer court orders being issued against people unable to service their debt.

This suggests that the financial standing of consumers and their ability to handle debt is improving, he said.

However, the total number of liquidations increased by 22.5% year on year in January‚ after a 39.9% y/y decrease in December‚ the Stats SA data showed.

Liquidation figures are an indication of how many businesses or companies go under. The downside to company liquidations is mainly job losses.

Stats SA said the surge was due to voluntary liquidations which increased by 74.1%, with 103 more liquidations.

Company and close corporation liquidations increased by 24.7% (24 more liquidations) and 20.4% (21 more liquidations) respectively over the same period.

The largest year-on-year increases in total liquidations in January related to businesses in the financing‚ insurance‚ real estate and business services industry‚ which recorded 50 more liquidations; wholesale and retail trade‚ catering and accommodation‚ with 49 more liquidations; and construction‚ with 18 more liquidations.

Harris expressed his concern saying the increase appears “to be contrary to the trend-line which we have been tracking for some time”.

“We have for the last while factored into the equation the increasing usage of the relatively new business rescue mechanisms, and I will be disappointed if this is the gilt wearing off the business rescue gingerbread”.



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