Abstract:
The low success rate of business rescue in South Africa has been presented as the research problem in the study. This is because since the inception of Chapter 6 of the Companies Act, No. 78 of 2008 in 2011, there has been an average success rate of nine percent. This is fairly low compared to countries like the United Kingdom and the United States of America whose regimes inspired the development this Chapter 6. As a result, the study focuses on evaluating business rescue plans of past experiences based on the principles and guidelines stated in Chapter 6. The archival research compares what companies that came out of business rescue successfully did as opposed to those that were not successful. This assessment focused on finding any unique leading indicators of business rescue; and if compliance to the principles and guidelines of Chapter 6 is crucial for the outcome of business rescue and if there is material difference between business rescue plans of listed companies and unlisted companies. The objective of this study is to identify what makes strong and effective business rescue plans and what pitfalls need to be avoided when developing future business rescue plans.
In order to meet this objective, the study was guided by the stakeholder theory since the South African business rescue regime is creditor friendly and aim to observe the rights of affected parties in business rescue. Anchoring the study on this theory then guided the literature review to focus on the Act as the main source of literature to establish the structure of a typical business rescue plan, to know who the affected parties are, their ranking and why the principles and guidelines stated in Chapter 6 are important. Further literature review focused on articles from local and international from law; change management; and business management journals.
The research methodology applied was qualitative in nature so that the reasons for rescue success and failure can be explored. The findings were further validated by interviewing business rescue practitioners. The research findings indicated that all business rescue plans are uniform in structure but there are common strategies that are applied in the business rescue practice to restore companies back to being going concerns. Compliance with Chapter 6 is ideal but not crucial for success and that listed companies provide the BRPs with more data to work with. This then results in more detailed plans that are effective. One of the findings that was of significance is that business rescue outcome is also affected by the conduct of the professionals in the practice.
