More firms closing amid tough economy

For businesses, while all sectors saw a rise in business cessation in 2015 and last year, most of the increase in the period could be attributed to retail as well as transportation and storage.
For businesses, while all sectors saw a rise in business cessation in 2015 and last year, most of the increase in the period could be attributed to retail as well as transportation and storage.PHOTO: GIN TAY FOR THE STRAITS TIMES

Past two years see rise in closures across sectors, but retail one of hardest hit: Study

The percentage of businesses and companies shutting down has increased in recent years amid a challenging economic environment, according to data compiled by the Ministry of Trade and Industry (MTI).

The increase in closures of businesses as well as companies was recorded across sectors but retail was one of the hardest hit, said the study, which made use of data from the Accounting and Corporate Regulatory Authority.

Companies are defined as entities incorporated under the Companies Act consisting of at least a director, a secretary and a member.

Businesses are sole proprietorships and partnerships consisting of two to 20 members.

Get The Straits Times
newsletters in your inbox

Companies are separate legal entities - so, directors are not personally responsible for debts - while business owners are accountable for any obligations borne by the entity.

Companies and businesses made up around 64 per cent and 33 per cent of total business entities respectively last year, with the remaining 3 per cent comprising limited liability partnerships and limited partnerships.

The data showed a slight pickup in the cessation rate of companies in recent years, from 7.3 per cent in 2014 to 7.6 per cent in 2015 and further to 7.8 per cent last year.

"This could be due to the economic slowdown in 2015 and 2016 as well as ongoing economic restructuring," said the study, which was contributed by MTI economist Reuben Foong and released last Friday alongside the latest Economic Survey of Singapore.

Still, the cessation rate last year came in below levels recorded in 2011 and 2012, "suggesting that the overall corporate health of companies has not deteriorated significantly".

When it comes to businesses, however, cessation rates spiked over the last two years to reach 22 per cent last year.

"This suggests that businesses may be more vulnerable to economic slowdowns than companies, as they likely have weaker balance sheets and may lack access to financing to tide over a period of slower economic growth," the MTI study noted.

This could be the case for younger businesses, as a significant proportion of the businesses that ceased operations in 2015 and last year was less than two years old.

The data also showed that the increase in company closures in 2015 and last year was broad-based, with all sectors recording a larger number of exits in these two years.

In particular, the business services and wholesale trade sectors contributed the most to the overall increase in company cessation in that period.

Notably, the number of company closures in the retail trade sector also went up significantly, rising 20 per cent per year on average in 2015 and last year, higher than the 9.3 per cent seen in 2014.

For businesses, while all sectors saw a rise in business cessation in 2015 and last year, most of the increase in the period could be attributed to retail as well as transportation and storage.

The rise in business cessation in the retail trade sector "reflects the sluggish business environment faced by retailers in recent years, and also comes on the back of the spike in the number of new businesses formed in the sector in 2014", the study noted.

Meanwhile, the increase in the number of transportation and storage businesses that shut down could be due to drivers providing private car-hire services leaving after trying out the sector.

A version of this article appeared in the print edition of The Straits Times on August 14, 2017, with the headline 'More firms closing amid tough economy'. Print Edition | Subscribe