Exploring pre-packaging as an enhancement to business rescue processes : the case for South Africa

Abstract

Pre-packaged sales are a common occurrence in most regimes that apply formal restructuring practices to rescue distressed businesses, giving them a fighting chance of survival. This study examines pre-packaged sales (or pre-packs) in a series of four articles termed publication-based-thesis to examine the operating environment, praxis and mechanics of the practice in order to develop a framework for the practice in South Africa (SA), being a newly established business rescue model. Using grounded theory to develop the framework, the study applies a thematic analysis of the legal, financial and operating environment of pre-packs in established and mature restructuring regimes to build towards a framework. The study follows with a survey of the practitioners in SA business rescue, and in particular, regarding cases that have culminated in sales as part of their successful termination, in order to determine the predictive pattern of such sales towards establishing pre-packs. It was, in fact found that pre-packs were already unofficially applied in the SA business rescue context. Applying the international theoretical framework to match local expert opinion in SA, the study culminates in building an operating framework for pre-packs in the local environment. The framework suggests amendments to the legislation that would remove uncertainties, especially regarding the acts of insolvency relating to directors’ obligations. The recommendations also suggest practice notes by the practitioner organisations that would govern the conduct of business rescue practitioners to ensure fair and equitable implementation of pre-packs. Furthermore, resulting from an observation made throughout the study, a theoretical argument is made regarding precedent as a theory in pre-packs. Precedent for pre-packs emerges as a realisation that pre-packs are often not legislated for, occur consequently as a result of legislative grey areas or gaps, and they are often then accepted as practice after sanction by courts or general adoption by practitioners.