Abstract:
Background: The direct costs associated with business rescue proceedings are integral to the decision-making of directors, business rescue practitioners and other affected parties. Business rescue has been criticised for being a costly procedure, but what constitutes these costs and how they are defined remain largely unknown.
Purpose: This research set out to explore the direct costs of business rescue proceedings in South Africa. More specifically, the study set out to identify and measure the direct costs of business rescue. In addition, the study examined the relationship between the direct costs and the following variables: company size and duration of business rescue proceedings.
Method: An exploratory sequential mixed methods research design was employed in this study. Phase one, which consisted of semi-structured interviews supplemented by a closed card sort with 14 business rescue practitioners, resulted in direct cost categories and components that were used to develop a survey instrument. A survey was conducted in phase two, whereby the direct costs were measured for 19 companies that were previously under business rescue in South Africa.
Results: The results of phase one show that the direct costs of business rescue consist of four categories, namely; the basic remuneration of the business rescue practitioner, contingency fees, professional fee disbursements and general disbursements. Given the small sample size, the results of phase two were inconclusive.
Conclusion: The results may assist affected parties as it offers some insight and clarity as to the nature and magnitude of the direct costs of business rescue proceedings.
