Orientation: As required by various sections in The Companies Act 71 of 2008, the appointed practitioner in a rescue must place before the court facts proving reasonable prospect; this is mainly determined through the subjective thought process of the practitioners who rely on his/her experience and knowledge in rescue and/or business management. This appears in direct contrast to the requirements set out by several court cases. There are many questions surrounding the determination of reasonable prospect as there is no benchmark for business rescue practitioners to work towards or a prescribed process to be followed.
Research purpose: This article investigates different methods available to business rescue practitioners to factually determine (initial) reasonable prospect and guide the decision making process during the initial stages of the rescue.
Motivation for the study: Business rescue is still in its infancy and reasonable prospect is one of the many vague but yet mandatory for initiating business rescue procedures. A better understanding of reasonable prospect and possible ways to factually measure it will contribute greatly to the business rescue regime.
Research design and approach: The research studied numerous methods of determining financial distress and decline (literature) as well as relevant cases (law) of rescue accepted or declined in court, on the basis of reasonable prospect. Triangulation of findings assisted to conclude on a series of possible tools to be utilised during the business rescue process.
Main findings: Reasonable prospect is mainly based on the practitioner's experience and opinion. Factually proving reasonable prospect remains difficult due to the presence of information asymmetry and the liability of data integrity. Due diligence is important and academic methods of determining financial distress/decline/position mostly serve as a communication tool to creditors.
Practical/managerial implications: Business rescue practitioners and other affected parties could benefit from the insights obtained through this study. Confirming possible methods that could assist with the factual determination of (initial) reasonable prospect can contribute to business rescue education/ development as well as avoid the current conflict that surround the subject. Practical benefits for affected parties that must use reasonable prospect are also proposed.
Contribution/value add: Identifying relevant methods of determining (initial) reasonable prospect may contribute to the better understanding of business rescue and possibly help future education of BRP's.
Dissertation (MCom)--University of Pretoria, 2016.