No need for alarm as more Singapore companies wind up in 2022: Expert

As many as 205 companies were forced to wind up in 2022. ST PHOTO: DESMOND WEE

SINGAPORE - Even though the number of companies forced to wind up in 2022 was slightly higher than in the previous two years, the public need not be alarmed.

Rather than looking at the absolute number of bankruptcies, it is more important to look at the percentage of bankruptcies compared to the number of new businesses formed, CIMB economist Song Seng Wun told The Straits Times.

Unlike in the past, bankruptcies today are associated with less taboo, he said.

This means that more people are willing to take risks, resulting in more businesses being formed today – and naturally, a higher number of them will also fail. Therefore, looking at it as a percentage instead of an absolute number is more critical, Mr Song added.

As many as 205 companies were forced to wind up in 2022, according to figures released by the Ministry of Law.

This is higher than the number of compulsory closures in 2021 and 2020, when 191 and 201 companies respectively were forced to shut for good.

The number of bankruptcy applications filed in the first 11 months of 2022 also reached a high of 3,380, close to 2019 levels after two years of decline.

As life returns to normal after the Covid-19 pandemic, businesses that had previously experienced fast growth during the pandemic may need to pivot to sustain operations.

For instance, businesses that specialise in virtual events may see a drop in demand as more in-person activities return.

On the flip side, those in the tourism industry will likely experience an uptick in demand, especially with the reopening of China’s borders, said Mr Song.

Nonetheless, the most important aspect for a business to sustain itself through tough times is to maintain a healthy cash flow. Having a consistent and sustainable cash flow would allow a business to pay its bills and invest in growth, continue operations and meet other financial obligations.

Bankruptcy numbers are also subject to a time lag, Mr Song said. This means that the bankruptcies in 2022 were a reflection of problems that companies would have been facing for the past couple of years.

The outcome of the Singapore Business Federation’s (SBF) latest National Business Survey – conducted between Aug 29 and Nov 23, 2022 – showed that companies here are becoming more cautious in the new year as recession concerns and business costs rise.

A total of 931 companies were surveyed and almost all of them, or 97 per cent, said they expect inflationary pressures to continue in 2023.

Mr Albert Tsui, executive director of SBF’s advocacy and policy division, said: “Fifty per cent of businesses have adequate liquidity to last more than six months and 29 per cent of them have sufficient liquidity for three to six months.

“In managing their liquidity positions in these challenging times, many are minimising non-essential outflows (48 per cent).

“It is also useful to note that business closures and new business formations are part of a natural cycle of business renewals, and many new businesses could have been formed in the past two years as part of business recovery.”

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