Warning over ‘zombie companies’ in South Africa

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It’s life or death for some companies in South Africa.

Load shedding, electricity price hikes and the knock-on effects are going to place additional stress on consumers and businesses this year – to the extent that more bankruptcies in the country are “inevitable”, says Dr Eric Levenstein, Director and Head of the Insolvency and Business Rescue Practice Group at Werksmans Attorneys.

There is an expectation that these zombie companies will have no choice but to file for insolvency or bankruptcy, given the headwinds posed by the economic environment. According to Levenstein, South Africa saw 51 filings in the finance, insurance, real estate and business services sectors, followed by 35 filings in the trade, catering and accommodation sectors, followed by 17 in the community, social and personal services sectors.

The Companies Act 2008, frowns upon such behaviour and imposes civil liability for reckless and insolvent trading on such directors, he said.

 

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