Company failures continue at a high rate. Reg Rumney reports
TIGHT monetary policy still seems to be taking its toll among companies, although individuals seem to be sorting out their finances.
In the first five months of this calendar year the total number of company failures is 15 percent higher than the first five months of last year, at 1 269.
The May liquidation figure of 308 is the third highest on record after the 314 in February this year and the 388 of December 1985. This is 30,5 percent up on May last year and 37,5 percent higher than in April 1994.
Generally, the upturn now under way should have translated into a better business environment. Economic growth of two to three percent has been forecast for this year.
Monetary policy, however, is still arguably too tight.
“We are still sitting with prime at 15 percent,” says Credit Guarantee senior economist Luke Doig. He notes that in previous upturns prime was close to three percentage points lower.
Why close corporations have fared better than companies, Doig cannot explain.
Eight hundred and eleven or 57,8 percent more companies failed over the first five months of this year than in the comparable period of 1993. Close corporation failures are 22,2 percent lower, at 458.
The lower company tax rate of 35 percent may help some companies, but then again it will do nothing for firms near the brink, which are either just breaking even or losing money.
Balancing the company figures is the improving financial situation. Individual, private person and partnership insolvencies continued to drop sharply in the first four months of this year. They were 37,4 percent lower than a year ago, though April’s figure of 185 (the March figure was 328) is likely to be revised upwards.
Doig says the improved financial position of individuals is reflected in the decrease in civil debt figures, which has not decreased for companies.
Up until the election, pessimism about the future seems to have nudged companies into voluntary liquidation.
Non-compulsory closures of 414 or 51 percent of total company failures in the first five months of this year are up from the level of 20,6 percent a year ago. CC non-compulsory failures rose from 6,1 percent to 31,2 percent.
An industry breakdown of total failures shows that the financial sector fared worst of all in the first five months of this year, with 552 firms, or 43,5 percent of the total, closing their doors. The figure for 1993 was 288 or 26,1 percent.
The retail and wholesale industry fared better this year, with failures in this area making up 29,3 percent of the total, compared to the 41,9 percent of the total recorded in the first five months of 1993.
Agricultural failures more than doubled to 55 in the first five months of 1994 compared to 23 recorded in the same period last year, while mining closures more than halved because of improved commodity prices.