Insolvency statistics sharply down - But optimism tempered by marginal decline in liquidations

The number of insolvencies in South Africa declined by a dramatic 32,2% (from 5 229 to 3 544) in the 11 months to November 2010.

“That’s a figure of noteworthy dimensions,” says Adam Harris, a Director in the Insolvency and Restructuring Department of corporate law firm Bowman Gilfillan, in his assessment of Statistics SA report on liquidations and insolvencies released yesterday (Monday).

He notes that the downward trend in insolvencies, going back to August 2009, is firmly entrenched, suggesting that the nation’s economic revival is on track.

“But having said that, we should not be complacent; the economy is not yet out of the woods, bearing in mind the liquidation statistics (reflecting corporate failures), which fell by no more than a marginal 3,4% (from 4 133 to 3 992) in the 12 months to December 2010. For an economy of our size, annual liquidations in the region of 4 000 are substantial.

“Only once the liquidation statistics fall to a level significantly below 4 000 can we assume a more optimistic stance.”

At the same time, he was unwilling to express pessimism on the economic outlook.

“I am simply suggesting caution. One is hopeful that the liquidation numbers will in due course echo their insolvency counterparts. It’s perhaps just a matter of time.”