PwC: Corporate insolvency trends in South Africa
Key corporate insolvency trends and dynamics affecting South Africa.
By PwC
PwC's Global insolvency year in review 2024 presents a detailed analysis of insolvency trends across major global economies. While the report includes Africa-focused content developed by PwC Africa colleagues – covering South Africa, Ghana and Kenya – the following summary highlights the key insights related to South Africa.
The South African economy has faced ongoing challenges, including rising inflation, energy crises, high unemployment, regional political uncertainty, and global economic uncertainty, all of which have impacted businesses across multiple industries. In this overview, we explore key corporate insolvency trends, dynamics affecting corporate South Africa, the sectors under the most pressure, and some of the high-profile business rescue proceedings and liquidations during the year.
Corporate insolvency trends in 2024
South Africa has two primary legislated alternatives to informal/ consensual restructuring processes when a business is financially distressed, being namely business rescue or liquidation. The aim of business rescue is to restructure the affairs of a company in such a way that either maximises the likelihood of the company continuing in existence on a solvent basis or results in a better return for the creditors of the company than would ordinarily result from the liquidation of the company.
As per Statistics South Africa, for the 11-month period ended November 2024, corporate liquidations in South Africa saw a marginal drop from the same period in 2023 of 3.9% (1,520 to 1,461). Although this is positive news, this decrease is off an already high base which is further exacerbated by business rescue remaining an underutilised mechanism. The latest business rescue data available from the Companies and Intellectual Property Commission (CIPC) (August 2024) showed 230 companies entering business rescue versus 1,020 companies filing for liquidation in the same eight-month period.
The gap between the two legislated mechanisms may be because of the stigma associated with business rescue as being ‘just another step’ towards liquidation, in combination with other factors, such as a lack of understanding of available mechanisms by the market, limiting the number of eligible companies being placed into such a process.
Nevertheless steps are being undertaken by numerous stakeholders including the South African Restructuring and Insolvency Practitioners Association (SARIPA); the CIPC (which administers/monitors business rescue proceedings in South Africa), government and others, to educate the market around business rescue, understand how to detect company distress earlier, enforce reckless trading legislation more vigorously, and hold business rescue practitioners to the highest possible professional and ethical standards – all with the aim of driving increased positive business rescue outcomes, thereby preserving value and livelihoods in the process.
Notwithstanding the above, it is important to note that there continues to be a clear shift in the South African market to more consensual restructuring options being pursued, including the deployment of operational restructuring and rapid turnaround teams, financial advisory support and embedding of chief restructuring offices/ officers on a case-by-case basis.
This is a positive development as this signals earlier engagement with appropriate advisors/ committees to manage company distress before options are limited, noting that consensual restructuring options are almost always more beneficial than formal options.
For more information on insolvency trends in South Africa, download the full report