Liquidations statistics
Company liquidations past 36 months
Click on the thumbnails for an enlarged views of the most recent liquidations statistics (September 2007) for monthly compulsory, voluntary and total company liquidations.
The interest rate increases in June, August, October and December 2006 were the drivers of the peaks in the November and December 2006 3-month averages, after which time liquidations leveled off again.
Interest rates were not increased in February and April 2007, but voluntarily and total liquidations started increasing nonetheless.
June and August 2007 interest rate increases drove up August and September 2007 liquidations.
In fact September 2007 compulsory and total liquidations were the highest monthly liquidation figures in years. The October interest rate increase too will help increase liquidations in months to come.
Note that liquidators face significant case backlogs and fluctuating capacity, compromising the consistency of liquidations data. Because of this, longer-term trends in the data are considerably more useful than shorter-term fluctuations.
Also, June 2007 figures were probably compromised by the public sector strike in that month.
See turnaround market watch for more information on the prospects of future liquidations activity.
Company liquidations since 1990
Click on the thumbnails for an enlarged views of the most recent liquidations statistics (September 2007) for annual compulsory, voluntary and total company liquidations per month.
Since the early nineties, compulsory company liquidations have been decreasing whilst voluntarily and total company liquidations increased until 2003.
Voluntarily and total company liquidations dropped in 2004 but has been increasing steadily since:
- Monthly voluntarily company liquidations in 2007 are the highest since 1990.
- Monthly total company liquidations in 2007 are the 3rd highest since 1994.
The local economy has in recent years benefited from a strong rand, relatively benign inflation, low interest rates and strong consumer spending.
The South African economy is experiencing one of its longest expansions in history, with uninterrupted growth of 13 years thus far.
Yet, there are strong signs that the favourable financial conditions of the past few years are peaking and cyclically heading for a downturn.
See turnaround market watch for more information about rising interest rates, weakening exchange rate and rising inflation.
Compulsory company liquidations have been on the slide since the 90's.
Liquidations statistics as a leading indicator for turnaround industry activity
The level of company liquidations serves as a proxy for market potential for turnaround and business rescue practitioners involved in the Turnaround industry and Business rescue industries.
Compulsory company liquidations
Traditionally, as is the international practice, the focus has been on compulsory company liquidations representing a lagging indicator of the potential market for turnaround.
Voluntary company liquidations
In the past, voluntary company liquidations did not receive much attention as these are not necessarily as a consequence of financial distress.
In the case of a voluntary liquidation by companies themselves, the companies are solvent and are terminated (and consequently liquidated prior to their dissolution) due to the companies wanting to discontinue operations, for whatever reason.
Many of the voluntary liquidations may be voluntary liquidations by creditors, in which case the company is insolvent, but a less expensive (and less onerous) procedure than compulsory liquidation is followed to get them into liquidation.
The breakdown between voluntary liquidations by companies vs. by creditors is not published by Stats SA.
Shift towards voluntary company liquidations
Over the past decade, compulsory company liquidations decreased whilst voluntary company liquidations increased (see the section on company liquidations since 1990 below).
As a result, compulsory company liquidations have decreased from between 60% and 80% of total company liquidations during the early nineties, to 40% to 60% during the late nineties, and to less than 20% during the twentieth century (see graph below).
Why the shift?
For many years prior to the early nineties advisors to companies wanting to place itself in a form of voluntary liquidation was of the view that such a process could only be facilitated through the Courts when the company was unable to pay its debts or insolvent.
The issue of which liquidator(s) to be appointed was an integral part of the process.
In those days the Master did not make the details of pending liquidations public by publishing the lists of Respondents on its notice board so liquidators who had been “tipped of” about the pending liquidation could do all their canvassing without fear of any opposition.
In the middle nineties the Master started making the lists available and the “competition” for appointment became fierce because the information was now in the public domain.
It then dawned upon companies, attorneys and liquidators that the passing of a resolution for a creditors’ voluntary winding-up was a much better way to keep the information of the pending liquidation out of the public domain as there was no legal requirement to obtain a security bond from the Master prior to the adoption of a resolution as is the position when launching a Court application.
It became the preferred route and was being driven by the fact that, in many instances, insolvency practitioners and attorneys specialising in insolvency law deemed it to be more beneficial to control the process through the mechanism of a voluntary winding-up as opposed to a Court liquidation.
In following the resolution route the role players once again had the inside track as the prospective liquidator could do all his canvassing in peace and quiet.
It also became a much cheaper and less cumbersome option than to go to Court for an Order placing a company in liquidation bearing in mind that the costs involved for a Court liquidation could be anything between R20,000.00 and R50,000.00 as opposed to, possibly, a maximum of R5,000.00 in the case of a voluntary winding-up.
Most, if not all, liquidation applications are driven by the parties who have a vested interest in the appointment of the liquidator, i.e. the attorneys or the liquidators themselves.
It took the Master a few years to cotton on to this and the Master started publishing resolutions with a 48 period to all role players to get their act together in so far as nominations etc. are concerned.
By then the process of passing a creditors’ voluntary winding up resolution had proved to be a much cheaper, quicker and more effective way to place a company in liquidation than to go the Court route.
New business rescue legislation
Expected to be operational by 2009, new business rescue legislation will not only have an impact on compulsory liquidations, but perhaps on voluntary liquidations too.
The potential for business rescue of companies that would have followed the voluntarily liquidation route seems limited:
- More than 90% of companies being liquidated have assets of less than R150,000;
- More than 95% of companies being liquidated have less than five employees;
- Most liquidations are voluntarily liquidations.
The reason for this is self evident as those statistics relate to insignificant companies, one man shows, empty shells and by and large defunct companies.
However, in terms of the new business rescue legislation employees will be better off in a (compulsory) liquidation following unsuccessful business rescue compared with a voluntary liquidation by creditors.
- Their employment contracts will be maintained during business rescue, rather than having their employment contracts suspended in liquidation.
- In the event of unsuccessful business rescue, they will be preferred creditors during subsequent liquidation rather than having limited preferred creditor status they would otherwise have had under insolvency legislation.
It therefore follows that employees, who will have the right to commence business rescue proceedings and who will have a vote about the future of the company during the process as a creditor, will contest some voluntary company liquidations.
Given the trends towards voluntarily rather than compulsory liquidation, and new business rescue legislation with its increased benefits to employees as creditors, voluntary company liquidations should also become a focus point of the turnaround industry.
CRS turnaround wish to thank Professor David Burdette from the University of Pretoria and Hans Klopper from Independent Trustees for their insights.
Readers are invited to email their opinions to on why compulsory company liquidations are decreasing relative to the total, and what the impact of new business rescue legislation will be on both compulsory and voluntary liquidations.
Read more about liquidation as the 4th stage in the timeline of financial distress.