The almost 50% year-on-year fall in February liquidations to 200 (from 399) paints, at best, a very dubious picture of the true scenario, according to Luke Doig, senior economist at Credit Guarantee Insurance Corporation (CGIC).
“There is very little doubt that the improving trend experienced last year – a 10.8% fall in total liquidations to 3559 from 3992 in 2010 – was reflective of reasonable economic activity but the 33.7% fall in the quarter ended February 2012 compared to the 3-months ended November 2011 all but beggars belief,” he said.
He felt that there can only be two reasons for this.
Firstly, the beginning of the year often sees a sharp decline in official liquidations due to administrative reasons (read holidays). However, February then stages a recovery, as seen in 2011 when 27.5% more failures were recorded compared to a month earlier. This year, there was no month-on-month change whatsoever.
The second reason may be allied to the difficulties and backlogs being experienced at the Companies and Intellectual Properties Commission (CIPC), similar to the inexplicable 60% fall in recorded liquidations in May last year (coinciding with the promulgation of the new Companies Act).
“Unfortunately, this worrying disclosure could lead to a false sense of wellbeing and ultimate complacency in dealings between companies, with potentially devastating results when reality eventually sets in,” Doig added.
“While noting that these figures are often volatile and traditionally backward looking – a lagging indicator - they do imply that there is most likely to be a substantial surge in the figures in the months ahead.”
