Exploring Salient Creditor Perspectives on Support for Business Rescue Plans for Decision-Making

Annah Beauty Kgobe; Marius Pretorius; Wesley Rosslyn-Smith

doi:10.25159/1998-8125/17938

Authors

Beauty Kgobe University of Pretoria https://orcid.org/0009-0008-2783-6218
Marius Pretorius University of Pretoria https://orcid.org/0000-0001-9729-3716
Wesley Rosslyn-Smith University of Pretoria https://orcid.org/0000-0002-5801-104X

DOI:

https://doi.org/10.25159/1998-8125/17938

Keywords:

Business rescue plans, cause of distress, decision-making, financial distress, post commencement finance, turnaround strategy

Abstract

Background: Creditors, especially banks, play a significant role during business rescue (BR) proceedings and in the sustainability of business operations after substantial implementation. The expectations by banks as influential secured creditors on the BR plans are still not refined and establishing the banks’ benchmark on the plans and what drives their decisions is essential.

Purpose/objective: This study investigates what banks regard as good or bad plans and what critical information drives their decision to support or reject the plans.

Design/methodology: Data were collected through semi-structured interviews with ten individuals within the banking industry who are within business support, workout, or a turnaround department.

Findings: The findings reveal the key information that banks, as salient stakeholders, consider critical in BR plans for decision-making. This information relies heavily on deal-breaker factors, clear prospects, the proposed strategy, and financier caveats. Furthermore, the findings show that there is a need for the framework of BR plans to be revisited.

Research limitations: Based on voting powers, creditors included secured creditors only excluding trade creditors and suppliers. Furthermore, literature on BR plans in South Africa was found to be limited.

Originality/value: The study highlights the need for improved knowledge and upskilling business rescue practitioners (BRPs) as well as for accredited professional bodies to relook at minimum requirements for awarding BRP licenses. BRPs can use this information to understand what creditors are looking for and engage with creditors for pre-packaged plans. BRPs can understand the criteria that creditors consider in a BR plan for it to be a good BR plan, and what information they need to persuade them to vote for BR plans.

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