Informing the Vote: The Business Rescue vs Liquidation Decision

Wesley  Rosslyn-Smith; Nicole Varela Aguiar  de Abreu

doi:10.25159/1998-8125/8564

Authors

Wesley Rosslyn-Smith University of Pretoria https://orcid.org/0000-0002-5801-104X
Nicole Varela Aguiar de Abreu University of Pretoria https://orcid.org/0000-0003-2870-6809

DOI:

https://doi.org/10.25159/1998-8125/8564

Keywords:

insolvency, reorganisation, business rescue, liquidation, proposed liquidation value, actual liquidation value

Abstract

Background: Non-unitary insolvency systems require an initial choice between liquidation and rehabilitation. For those systems, the decision to further support rehabilitation is often reinforced by the estimate of a lesser return in liquidation. The creditors’ decision to either accept or reject the business rescue plan depends substantially on comparing the proposed liquidation value with the business rescue value that is mandated in the business rescue plan.

Purpose: The purpose of this study is to compare the proposed liquidation value with the actual liquidation value of firms that had commenced business rescue proceedings but were subsequently liquidated. This study is exploratory; therefore, our aim is to use the findings of this study to derive future research opportunities for scholars to explore.

Methodology: This research adopted a content analysis research approach by collecting documents such as business rescue plans and liquidation accounts, which are qualitative in nature, and describing these documents through quantitative data analysis.

Findings: The study revealed that for the secured creditors’ sample, there was a significant difference between the proposed liquidation value and the actual liquidation value. For the unsecured creditors’ sample, this study found no significant difference between the proposed liquidation value and actual liquidation value.

Limitations: The major limitation of this study was access to data; therefore, the huge decline in the actual sample size in comparison to the expected sample size.

Value: To the researchers’ knowledge, this is the first study comparing the proposed liquidation value to the actual liquidation value in order to determine whether differences exist. As a result, this study tackles a novel perspective on one of the influences that can affect the vote. This may be of particular importance to creditors, who may find the results of this study to be useful. Lastly, the findings of this study derived future research opportunities for scholars to explore.

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Author Biographies

Wesley Rosslyn-Smith , University of Pretoria

Senior lecturer in Corporate Strategy, Turnaround Management and Business Analytics at the University of Pretoria. Completed his Master’s in Business Rescue (cum laude) at the University of Pretoria in 2014 and then went on to complete his PhD in Turnaround Management in 2018. He is a member of the Turnaround Management Association of South Africa, The South African Restructuring and Insolvency Practitioners Association and International Insolvency Institute.

Nicole Varela Aguiar de Abreu , University of Pretoria

Lecturer in business management and supply chain management at the University of Pretoria. She completed her master’s degree in Business Rescue (cum laude) at the University of Pretoria in 2018 and is currently completing her PhD in Turnaround Management at the University of Pretoria.

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