Improvements in liquidation and insolvency figures released by Statistics South Africa (Stats SA) this week, while revealing a welcome declining trend, did not necessarily indicate that the country’s economy was strengthening, law firm Bowman Gilfillan said on Tuesday.

According to figures released by Stats SA, there had been a 24.9% decrease in liquidations during the first five months of 2014, compared with the first five months of 2013, while insolvencies were down 1% in the first four months of 2014, compared with the same period last year.

Bowman Gilfillan director Adam Harris noted that, while there were fewer bankrupt companies being liquidated and fewer individuals and partnerships being declared insolvent as a result of unpaid debt during the first part of this year, the fall in official figures could be owing to the financially constrained entities using alternative mechanisms.

“Where liquidations are concerned, it is significant that there has been a healthy trend of declining numbers since 2009 when liquidations totalled 4 133, against 2 374 last year.

“[However], while this trend is comforting, other factors at work in the liquidation and insolvency market may be influencing the numbers,” he said.

Credit Guarantee Insurance Corporation senior economist Luke Doig also noted that the decline in liquidation figures was somewhat at odds with the sluggishness in the local economy and the fact that the country was “flirting with recession”.

“Our experience is that the business operating environment is not far off the weak levels experienced in 2009 when the economy contracted by 1.5%. Our claims payments rose nearly 120% last year – and this was also 51% up on the horrendous levels seen in 2009. 

“Our payment default leading indicator – which depicts contractual payment terms not being adhered to – is up 71% in value and 12.4% in number in the first five months of 2014, highlighting the severity of the matter,” Doig said, adding that, as a consequence, the corporation was seeing payment extensions and repayment proposals across many sectors, from building, steel and associated industries to food and durables.

He added that the liquidation data figures had been affected by business rescue applications; however, Credit Guarantee was witnessing a slowdown in these applications given the complexities, time and costs involved.

“However, when they do occur, business rescue cases are sizeable, as witnessed by the recent case of Protech Khuthele,” Doig said.

Looking ahead, Credit Guarantee remained concerned that domestic growth was unlikely to approach 1.5% for the full calendar year.