Founder: Turnaround Talk
There has been a lot of reference to the tough economic climate that South African companies are facing.
These questions were unpacked in a recent report by the Companies and Intellectual Property Commission (CIPC), which provides interesting answers and stimulates conversation about other aspects of the business rescue, turnaround, and insolvency profession.
Affected industries
The CIPC report points out that wholesale and retail trade and the repair of motor vehicles and motorcycles have been the most impacted by the current challenging economic climate. This is a clear indicator that consumer behaviour has experienced a significant shift.
A major change occurred during the COVID-19 Pandemic when consumers were forced to use online shopping platforms during the lockdown. Retail companies catering to clientele that can access these platforms coped better with the changing dynamics than bulk retailers whose clientele typically struggle to access these platforms. Additionally, urban retailers would have made this change easier than rural retailers.
Focusing on the motor industry, COVID-19 and the more recent cost of living crisis created a perfect storm for this sector. Employers have extended work-from-home policies, which have seen a significant decrease in traffic on the roads, leading to fewer insurance claims. Many households have downgraded to one vehicle either because one family member has transitioned into a fully remote role, or partners can rotate which days they work from the office. The current cost of living crisis has significantly impacted this sector; interest rates have forced many families to downgrade to one vehicle and their vehicles. Similarly, comprehensive insurance policies are being downgraded to basic third-party policies impacting autobody shops.
The distress of the retail sector has impacted the manufacturing sector in two significant ways. Supply chain issues caused during the COVID pandemic forced manufacturers to change their lead times and technology while offering significant benefits to manufacturers, which is an expense that many manufacturers could not easily adopt.
Other notable industries that face significant disruption in the current economic climate include the construction, real estate, and agriculture sectors, which have been mainly impacted by the current logistics crisis, affecting key export ports such as Cape Town and Durban.
Image By: Canva
A steady decrease
Are we seeing the end of the golden age of business rescues? The CIPC report shows that there was a lot of business rescue activity between 2011-12 and 2015-16. However, there has been a steady decrease since 2021 despite 111 business rescue professionals registered in 2020. The CIPC reports that there were 248 business rescues in 2021-22; this decreased to 126 rescues in 2022-23 and 54 this year.
Liquidations have also been steadily decreasing. Statistics South Africa reported that in July 2023, 140 companies were liquidated; this increased slightly to 144 in November 2023, bringing the year’s total to 284 liquidations. StatsSA points out that there were 128 liquidations in April 2024 and 128 liquidations in August, bringing the year’s total to 256 (as of August 2024).
Stats SA recorded its final liquidation figures in December 2023 counting 90 liquidations in December 2024, down significantly from November and from the year prior.
The total number of liquidations decreased by 34.3% (from 137 to 90) in December 2024 compared with December 2023.
A move away from business rescue and liquidation
Creditors are becoming increasingly aware that they are not seeing the sale values they used to out of liquidations. There is a significant move towards creditors adopting informal workouts to preserve the lifespan of a company facing financial distress. This means that debt restructuring will play an important role within the business rescue, restructuring and insolvency profession in the future.
Are BRPs agile enough to make this change? While 113 BRPs have a business management background, only 101 of these professionals have a background in accounting. In an industry where competition for business is often fierce, will the shift towards informal workouts place too much pressure on BRPs with relevant experience and expertise? Where will this leave the others?
