Business rescue: Adapt or die

Abstract

Background: The low success rate of business rescue has prompted debate relating to the effectiveness and continued suitability of business rescue as a mechanism to rehabilitate financially distressed companies. Although this legislation was implemented in May 2011, statistics indicate that the success rate for business rescues is only approximately 12%. A feature of the business rescue environment in South Africa is the lack of knowledge, necessitating more research in the field. Aim: This study focused on changes required to ensure the survival and increased success of the business rescue legislation. Setting: This research was undertaken in South Africa between 2015 and 2017. Methods: A mixed-methods research approach was utilised for the study. The approach entailed interviews with 7 of the top 10 business rescue practitioners to diagnose reasons for business rescue failure and establish factors that would contribute to successful business rescues. A survey was conducted with the membership of the Turnaround Management Association of Southern Africa. Results: The survey was mailed to 130 members and the response rate was 54%. This study found that the causes of business rescue failures are mainly attributable to the skills deficit of the business rescue practitioner or the practitioner’s abuse of legislation. There is also a negative impact of appointing a liquidator as a business rescue practitioner. Other factors contributing to the failure of business rescues are management’s delay in filing for business rescue, either due to the resistance of filing or their lack of awareness of their distressed status. This study also provided the ranking order for business rescue success factors with the accreditation of a business rescue practitioner being ranked as first. Conclusion: The study chiefly focused on diagnosing and understanding the reasons for business rescue failure. The original contribution of this study to knowledge is the ranking of an accreditation framework for practitioners as the most important factor that would contribute to a successful business rescue. This study not only explains the low success rate of business rescue but ways to improve and succeed in rescuing ailing businesses.

Keywords

• business rescue
• business rescue practitioner
• early warning signals
• pre-package funding