Abstract
Background: In 2011 a new Companies Act (No. 71 of 2008) was implemented in South Africa. A feature of this Act was the introduction of business rescue legislation. Although this legislation was implemented in May 2011, statistics indicate that the success rate for business rescues is approximately only 12%. This low success rate prompted debate relating to the effectiveness, and continued suitability of a legislated business rescue as a mechanism to rehabilitate financially distressed companies. A feature of the business rescue environment in South Africa is the lack of knowledge, necessitating more research in the field. Aim: Due to the importance of the business rescue practitioner in the overall success of a rescue, the research focused on establishing competencies required to be a successful practitioner. Setting: The research was undertaken in South Africa between 2015 and 2017. Methods: A mixed methods research approach was utilised to identify the important competencies of a successful practitioner. A survey was conducted with the membership of the Turnaround Management Association of Southern Africa. The survey was mailed to 130 members and the response rate was 54%. The survey was complemented by undertaking interviews with 7 of the top 10 business rescue practitioners, according to their number of practitioner appointments. Results: The original contribution to knowledge of this study is the identification of a set of competencies that can be utilised to accredit business rescue practitioners and the emphasis on an accounting qualification and effective cash management skills that a successful practitioner must possess. Conclusion: The knowledge generated from this research will benefit business rescue practitioners, the financial sector and stakeholders of companies intending to go into a legislated business rehabilitation.
Highlights
Financial distress was originally defined by Beaver in 1966 as bankruptcy, insolvency, liquidation, a default on loan obligations or the inability to meet dividend payments (1966 in Muller, SteynBruwer & Hamman 2012:24). Outecheva (2007) undertook an empirical analysis of distress risks and compiled several definitions of financial distress
The identification of an accounting qualification as the most important qualification for business rescue practitioners represents a new contribution to knowledge in business rescue, it does support the focus on effective cash management of a financially distressed business that was highlighted in existing literature (Mindlin 2013; Pretorius 2012)
The legal skills must not be of a general nature or focused on an area that is not related to financial distress or corporate rehabilitation
Summary
Financial distress was originally defined by Beaver in 1966 as bankruptcy, insolvency, liquidation, a default on loan obligations or the inability to meet dividend payments (1966 in Muller, SteynBruwer & Hamman 2012:24). Outecheva (2007) undertook an empirical analysis of distress risks and compiled several definitions of financial distress. Outecheva (2007) undertook an empirical analysis of distress risks and compiled several definitions of financial distress. Financial distress occurs when a firm’s promises to creditors are broken or are honoured with difficulty It may result in dismantling and selling the firm’s assets (Senbet & Wang 2012:7). A feature of this Act was the introduction of business rescue legislation This legislation was implemented in May 2011, statistics indicate that the success rate for business rescues is approximately only 12%. This low success rate prompted debate relating to the effectiveness, and continued suitability of a legislated business rescue as a mechanism to rehabilitate financially distressed companies. A feature of the business rescue environment in South Africa is the lack of knowledge, necessitating more research in the field
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