By Pat Pattinson, COO TMA-SA
Based on the latest statistics as published by Statistics SA on the 27th of April 2021 it is undeniable that South African business owners are still battling the aftermath of COVID-19. The hardest hit was the small to medium-sized businesses, some of which were struggling even before COVID-19.
These businesses simply do not have the reserves to fight the ongoing battle of declining sales and supplier’s inability to pay them on time, if at all. This, combined with the uncertainty as to how long we will remain in the trenches, is forcing business owners to make the hard choice of continuing the fight and possibly facing the repercussions in law for trading in financially distressed circumstances, filing for liquidation or opting for business rescue.
The choice should be an obvious one, but based on the statistics as provided by Statistics SA, business owners are either waiting too long or ignoring the option of Business Rescue. After speaking to some of the business owners that liquidated their businesses it has become obvious that these business owners think that business rescue is only for larger businesses and that they will not be able to afford Business Rescue.
In my experience this is not true, business rescue is for all sizes of businesses and simply because a practitioner can charge a small fortune to assist a business, they do not have to. There are numerous alternative funding models available such as - payment plans, reduced rates and even equity remain options available to smaller businesses.
Now for some boring statistics:
- In January 2020 there were 125 liquidations compared to the 122 in January 2021, thus a small decline of 2.40%.
- In February 2020 there were 164 liquidations (an increase of 31.20% from Jan 2020) compared to the 178 in February 2021 (an increase of 45.90% from Jan 2021), thus an increase of 8.54%.
- In March 2020 there were 145 liquidations (a decrease of 11.59% from Feb 2020) compared to the 216 in March 2021 (an increase of 21.35% from Feb 2021), thus an increase of 48.97%.
- The total Number of Liquidations for this period was 434 for 2020 and 516 for 2021, an increase of 18.89%.
- Of these 434 liquidations in 2020, 47 were compulsory and 387 Voluntary liquidations and in 2021, 48 were compulsory and 466 Voluntary.
- It is thus clear that voluntary liquidations are the ones on the rise with an increase of 20.41%
From this, Voluntary liquidations are on the increase, (20.41%) as business owners see no other option, at the same time we must still consider those small business owners that simply abandon their businesses without actual liquidations.
The additional, and unconditional fact is that most of these businesses could be saved if the owners simply act soon enough and consider business rescue as an alternative.
Even structured wind downs in business rescue as per the reported judgment of “Carroll v Michael Carroll CC (2018/22808)  ZAGPPHC 74 (15 March 2019)) would be a more economical and amicable option than that of liquidation.