Abstract:
For companies in distress, the option of business rescue, as an alternative to
liquidation, is "the difference between resuscitating your business and burying it"
(Olivier, 2014, p. 30), business rescue provides a lifeline for distressed
companies heading toward failure.
To ensure South African business take full advantage of this lifeline, the research
sought to determine the applicability of turnaround literature on business rescue
in South Africa through empirically testing the applicability of Z scores on
Johannesburg Stock Exchange listed companies, which had entered into
business rescue, as a predictor of the outcome of the business rescue process.
Subsequently, the research examined the relationship between earlier entry into
business rescue and the outcome of the business rescue process.
The research took the form of quantitative research and examined the correlation
between Z scores and the outcome of business rescues and the differences in
group means of Z scores over fixed time periods prior to entry into business
rescue. The initial sample for testing correlations consisted of twelve firms, which
was later reduced to eleven, for the difference in group means testing.
The research established a statistically significant, strong, positive correlation
between the Altman Z score and the outcome of business rescue. This correlation
was then used to examine the inter group differences between the Z score at
entry into business rescue and periods prior to entry into business rescue. There
were significant differences in Z score at eighteen months and at twenty-four
months prior to entry into business rescue. Combining these findings the research
is able to conclude that earlier entry into business rescue will lead to significantly
better results in a business rescue process.
