Abstract:
BACKGROUND : Determining the turnaround potential of a firm has plagued academia and
practice. Existing failure prediction tools yield limited insight into turnaround potential and
are heavily dependent on financial metrics. This framework made a valuable contribution to
research in this field as it added a new perspective for decision-making purposes.
AIM : Practitioners, judges or directors require a quick, efficient framework to aid in developing
a reliable opinion on the likelihood of liquidation of a firm intending to commence with
reorganisation proceedings. The aim is to speed up the liquidation of economically inefficient
firms that attempt to seek shelter in reorganisation.
SETTING : The study was conducted in South Africa and made use of experts in the field of
turnaround management.
METHODS : The indicators were derived from a strong and widely used managerial tool known
as the Delphi method. The relative importance of each element was allocated using a powerful
mathematical model known as the analytic hierarchy process (AHP).
RESULTS : This study identified key indicators for the nine liabilities with accompanied weights
of relative importance for a likelihood of liquidation framework. Anchor scale values are
proposed for each indicator to assist in its application. The framework is timely in its
application, considers the availability of accurate data, inexpensive to implement and easy to
interpret.
CONCLUSION : The likelihood of liquidation framework was developed to include a broader
spectrum of liabilities to assist in deciding the viability of recovery of a firm in reorganisation.