Liquidations take toll on Bay business

Load-shedding could make it worse, economists warn

An average of three companies a month have been forced to apply for liquidation in Nelson Mandela Bay since 2017 – and economists have warned that continued load-shedding could see this number increase.

A total of 72 companies started the liquidation process between January 2017 and December 2018.

Meanwhile, the city’s share of the provincial economy dropped from 36.3% in 2007 to 35% in 2017.

The number of liquidations of private companies and close corporations – from civil to engineering, retail, printing and logistics – has been gleaned from the master of the high court in Port Elizabeth.

The list excludes sole proprietors or trading trusts, which means the number could be even higher.

The total number of liquidations across the country increased 37.6% (38 more liquidations) in January 2019 compared with January 2018, according to Statistics SA.

Voluntary liquidations increased by 32 cases and compulsory liquidations by six cases in this period.

The figures for liquidations at a provincial and metro level are not included in the statistics.

Thomas Castelyn, 43, whose company Poseidon Home of Pegasus Logistics in Walmer was liquidated in 2018, said it was a devastating process to go through.

He had run the transport and logistics business since 2006.

“It basically shattered my life,” Castelyn said.

“I don’t know how to bounce back from that.

“I am still sitting with the debt, with the banks coming after me.”

His company folded when a client cancelled a contract after Castelyn had already bought R20m worth of equipment for the job.

“The contract would’ve generated R45m in income and it seemed like a safe bet. But shortly after we bought the equipment, the company bought out its national competition,” Castelyn said.

“The people we had been working with were forced out and the contract was ultimately canned.

“With the current economic climate and Eskom [load-shedding], it will be a struggle to get back on our feet.”

Mark Telford, 53, co-owner of electronics company Teletek in Port Elizabeth, said he and his partner, David Coleman, 49, had spent R2m of their own money trying to salvage the business before it was liquidated in December 2018.

“The money [came] from [Coleman’s] holiday house, I bonded my house and my wife’s inheritance went into the business,” Telford said.

He started at the company as a high school pupil in 1982 and, in 1999, he and Coleman took 50% ownership following the death of their boss.

Telford said the business thrived until the rise of online shopping, among other factors including shrinking profit margins.

“We were making serious, serious money.

“And we just watched it all disappear,” he said.

Port Elizabeth lawyer and liquidator Joelene Brown said while there had actually been a decrease in the number of liquidations over the past decade, larger corporations, specifically in the construction industry, were closing down.

“This has led to significant job losses and has had a direct effect on our economy,” she said.

“Companies such as Masakeni Construction, Speyers Construction and, most recently, Omega Civils have left about 500 people in our area without jobs over the last few years.”

Omega Civils’ assets will be auctioned on Wednesday at the company’s offices in Walmer.

“Though the insolvency industry may have had a decrease in the number of companies going into liquidation in our region, the effect of liquidations in our area can still be seen, specifically in relation to job losses,” Brown said.

Attorney and liquidator Sean Johnson, who is dealing with seven liquidations, said

‘We were making serious money. And we just watched it all disappear’ Mark Telford

CO-OWNER OF LIQUIDATED COMPANY

businesses often closed down due to the poor economy.

“Others are caused by poor management or other factors.

“You sometimes find there is a knock-on effect where producers are impacted by the closure of suppliers.

“You cannot trade in insolvent circumstances.

“From my side, liquidations at the moment are not as bad as they have been in the past.”

Bay economist Professor Ronney Ncwadi said in the current economic climate it was survival of the fittest.

The Bay has a 36.9% unemployment rate, according to StatsSA.

Ncwadi said several variables contributed to the dwindling economy, among them load-shedding, land reform and a general lack of business confidence.

“Companies are going deeper and deeper into debt and there seems to be very little, if any, savings coming in to convert into investment.”

He said the city had likely also fallen victim to the slow growth globally and locally.

“This means businesses are no longer reinvesting their profits into the business to expand it.

“Thus their only option then is to liquidate.

“Sadly, it being a year of voting, businesses are really unsure as to what the new government’s policy is going to be, creating increased economic uncertainty.”

According to Ncwadi, the impact of liquidation is inevitably a rising rate of unemployment, which increases poverty.

“Companies that are liquidated employ people with families – people who have kids in school and university.

“If the business liquidates, it means they have to retrench those people or pay them off.

“For the people who are laid off, there is little hope they will get jobs anywhere because the surviving companies are struggling to absorb new entrants in the labour market.”