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.

References

Airline Pilots Association of South Africa (ALPA-SA), as represented by the South African Airways Pilots Association (SAAPA), a branch of ALPA-SA obo Members v South African Airways (SOC) Ltd and Others (J398/21) [2021] ZALCJHB 57, (2021) 42 ILJ 1087 (LC) (May 23, 2021). https://www.saflii.org/za/cases/ZALCJHB/2021/57.html.

Altman, E. I., and E. S. Hotchkiss. 2006. Corporate Financial Distress and Bankruptcy: Predict and Avoid Bankruptcy, Analyze and Invest in Distressed Debt. 3rd ed. John Wiley. https://doi.org/10.1002/9781118267806. DOI: https://doi.org/10.1002/9781118267806

Balgobin, R., and N. Pandit. 2001. “Stages in the Turnaround Process: The Case of IBM UK.” European Management Journal 19 (3): 301. https://doi.org/10.1016/S0263-2373(01)00027-5. DOI: https://doi.org/10.1016/S0263-2373(01)00027-5

Bradstreet, R. S., M. Pretorius, and P. Mindlin. 2015. “The Wolf in Sheep’s Clothing–When Debtor-Friendly Is Creditor-Friendly: South Africa’s Business Rescue and Alternatives Learned from the United States.” Journal of Corporate and Commercial Law and Practice 1 (2): 1–41.

Braun, V., and V. Clarke. 2012. “Thematic Analysis.” In APA Handbook of Research Methods in Psychology, edited by H. M. Cooper and the American Psychological Association. American Psychological Association. DOI: https://doi.org/10.1037/13620-004

Caelli, K., L. Ray, and J. Mill. 2003. “‘Clear as Mud’: Toward Greater Clarity in Generic Qualitative Research.” International Journal of Qualitative Methods 2 (2): 1–13. https://doi.org/10.1177/160940690300200201. DOI: https://doi.org/10.1177/160940690300200201

Castrogiovanni, G. J. 1991. “Environmental Munificence: A Theoretical Assessment.” Academy of Management Review 16 (3): 542–65. https://doi.org/10.5465/amr.1991.4279475. DOI: https://doi.org/10.5465/amr.1991.4279475

Charmaz, K. 2014. Constructing Grounded Theory. SAGE.

Choi, Y. R., and D. A. Shepherd. 2004. “Entrepreneurs’ Decisions to Exploit Opportunities.” Journal of Management 30 (3): 377–95. https://doi.org/10.1016/j.jm.2003.04.002. DOI: https://doi.org/10.1016/j.jm.2003.04.002

Commissioner for the South African Revenue Service v Louis Pasteur Investments (Pty) Ltd and Others (12194/17) [2021] ZAGPPHC 89 (March 4, 2021).

Companies and Intellectual Property Commission (CIPC). 2022. “Status of Business Rescue Proceedings in South Africa.” Accessed March 3, 2023. https://www.cipc.co.za/wp-content/uploads/2020/10/Status_of_Business_Rescue_in_South_Africa_September_2015_version1_0.pdf.

Companies and Intellectual Property Commission (CIPC). 2024. “Termination-and-Sub-Implemention-for-Publication-Sep-2024.” Accessed October 10, 2024. https://www.cipc.co.za/wp-content/uploads/2024/09/Copy-of-Termination-and-Sub-Implemention-for-Publication-Aug-2024-002.xlsx.

Conradie, S., and C. Lamprecht. 2015. “Business Rescue: How Can Its Success Be Evaluated at Company Level.” Southern African Business Review 19 (3): 1–29.

Cope, D. G. 2014. “Methods and Meanings: Credibility and Trustworthiness of Qualitative Research.” Oncology Nursing Forum 41 (1): 89–91. https://doi.org/10.1188/14.ONF.89-91. DOI: https://doi.org/10.1188/14.ONF.89-91

De Abreu, N. V. A. 2018. “An Exploration of the Costs Associated with Business Rescue in South Africa.” MCom diss., University of Pretoria. https://repository.up.ac.za/bitstream/handle/2263/70066/DeAbreu_Exploration_2018.pdf? sequence=1&isAllowed=y.

Decker, C. 2016. “Stakeholders’ Impact on Turnaround Performance: The Case of German Savings Banks.” Journal of Small Business Management 56 (4): 534–54. https://doi.org/10.1111/jsbm.12274. DOI: https://doi.org/10.1111/jsbm.12274

Doyle, L., C. McCabe, B. Keogh, A. Brady, and M. McCann. 2020. “An Overview of the Qualitative Descriptive Design Within Nursing Research.” Journal of Research in Nursing 25 (5): 443–55. https://doi.org/10.1177/1744987119880234. DOI: https://doi.org/10.1177/1744987119880234

Du Toit, A. C., M. Pretorius, and W. Rosslyn-Smith. 2019. “Small, Medium and Micro-Enterprises: Distress and Factual Evaluation of Rescue Feasibility.” Southern African Journal of Entrepreneurship and Small Business Management 11 (1): 149. https://doi.org/10.4102/sajesbm.v11i1.149. DOI: https://doi.org/10.4102/sajesbm.v11i1.149

Du Toit, A. C., and M. Pretorius. 2023. “Investigating Tensions Experienced by Decision-Makers During a Business Rescue Event.” Southern African Journal of Entrepreneurship and Small Business Management 15 (1): 1–13. https://doi.org/10.4102/sajesbm.v15i1.714. DOI: https://doi.org/10.4102/sajesbm.v15i1.714

Eliott, A. 2012. “Ranking of Administration Costs of and Claims Against a Company in Liquidation Post Business Rescue.” Insolvency and Business Rescue News. Accessed March 8, 2023. https://www.mondaq.com/southafrica/insolvencybankruptcy/163454/ranking-of-administration-costs-of-and-claims-against-a-company-in-liquidation-post-business-rescue.

Gant, J. L. 2022. “Optimising Fairness in Insolvency and Restructuring: A Spotlight on Vulnerable Stakeholders.” International Insolvency Review 31 (1): 3–7. https://doi.org/10.1002/iir.1448. DOI: https://doi.org/10.1002/iir.1448

Gribnitz, K. J., M. Pretorius, and S. Le Roux. 2025 “Exploring the Salience of Fundamental Moments in Turnaround Research.” Forthcoming, Journal of Contemporary Management. DOI: https://doi.org/10.35683/jcm23.005.285

Guest, G., A. Bunce, and L. Johnson. 2006. “How Many Interviews Are Enough? An Experiment with Data Saturation and Variability.” Field Methods 18 (1): 59–82. https://doi.org/10.1177/1525822X05279903. DOI: https://doi.org/10.1177/1525822X05279903

Han, C., A. Huml, A. Kagalkar, L. Saito, and K. Sundjaja. 2007. “The City Revival Plan: Circuit City Analysis and Restructuring.” Research Paper, Turnaround Management Association. Columbia Business School.

Hennink, M., and B. N. Kaiser. 2022. “Sample Sizes for Saturation in Qualitative Research: A Systematic Review of Empirical Tests.” Social Science and Medicine 292: 114523. https://doi.org/10.1016/j.socscimed.2021.114523. DOI: https://doi.org/10.1016/j.socscimed.2021.114523

Hofer, C. W. 1980. “Turnaround Strategies.” Journal of Business Strategy 1 (1): 19–31. https://doi.org/10.1108/eb038886. DOI: https://doi.org/10.1108/eb038886

Investec Bank Ltd v Bruyns (19449/11) [2011] ZAWCHC 423; 2012 (5) SA 430 (WCC). https://www.saflii.org/za/cases/ZAWCHC/2011/423.html.

International Accounting Standards Board. 2018. “Conceptual Framework for Financial Reporting 2018.” London: IFRS Foundation. Accessed May 21, 2023. https://www.ifrs.org/issued-standards/list-of-standards/conceptual framework/.

Jawahar, I. M., and G. L. McLaughlin. 2001. “Toward a Descriptive Stakeholder Theory: An Organizational Life Cycle Approach.” The Academy of Management Review 26 (3): 397–414. https://doi.org/10.2307/259184. DOI: https://doi.org/10.5465/amr.2001.4845803

Joubert, E. P. 2013. “Reasonable Possibility Versus Reasonable Prospect: Did Business Rescue Succeed in Creating a Better Test Than Judicial Management.” THRHR 76: 550.

Kekana, M. K., and M. Pretorius. 2024. “Investigating Management-Led Corporate Turnaround Strategies Compared to the Application of Business Rescue Proceedings: A Case Study of Rebosis Property Fund.” In AfRES Conference Proceedings, September 10–13, Livingstone, Zambia. https://doi.org/10.2139/ssrn.4997945. DOI: https://doi.org/10.2139/ssrn.4997945

Kekana, M. K., M. Pretorius, and N. V. A. De Abreu. 2023. “Enhancing Creditor Decision-Making in South African Business Rescue Proceedings: A Comprehensive Analysis of Information Requirements in Business Rescue Plans.” International Journal of Law and Management 66 (5): 555–77. https://doi.org/10.1108/IJLMA-10-2023-0234. DOI: https://doi.org/10.1108/IJLMA-10-2023-0234

Korstjens, I., and A. Moser. 2018. “Series: Practical Guidance to Qualitative Research. Part 4: Trustworthiness and Publishing.” The European Journal of General Practice 24 (1): 120–24. https://doi.org/10.1080/13814788.2017.1375092. DOI: https://doi.org/10.1080/13814788.2017.1375092

Le Roux, I., and K. Duncan. 2013. “The Naked Truth: Creditor Understanding of Business Rescue: A Small Business Perspective.” South African Journal of Entrepreneurship and Small Business Management 6 (1): 57–74. https://doi.org/10.4102/sajesbm.v6i1.33. DOI: https://doi.org/10.4102/sajesbm.v6i1.33

Levinthal, D. A. 1991. “Random Walks and Organisation Mortality.” Administrative Science Quarterly 36: 397–420. https://doi.org/10.2307/2393202. DOI: https://doi.org/10.2307/2393202

Lietz, C. A., and L. E. Zayas. 2010. “Evaluating Qualitative Research for Social Work Practitioners.” Advances in Social Work 11 (2): 188–202. https://doi.org/10.18060/589. DOI: https://doi.org/10.18060/589

Loubser, A. 2013. “Tilting at Windmills? The Quest for an Effective Corporate Rescue Procedure in South African Law.” South African Mercantile Law Journal 25 (4): 437–57.

Lusinga, D. D., and K. J. Fairhurst. 2020. “Role of Stakeholders in Business Rescue.” South African Journal of Business Management 51 (1): 1–11. https://doi.org/10.4102/sajbm.v51i1.1957. DOI: https://doi.org/10.4102/sajbm.v51i1.1957

Maheshwari, S. K. 2000. “Organizational Decline and Turnaround Management: A Contingency Framework.” Vikalpa 25 (4): 39–50. https://doi.org/10.1177/0256090920000405. DOI: https://doi.org/10.1177/0256090920000405

Merriam, S. B. 1998. Qualitative Research and Case Study Applications in Education. Jossey-Bass.

Miles, S. 2017. “Stakeholder Theory Classification: A Theoretical and Empirical Evaluation of Definitions.” Journal of Business Ethics 142: 437–59. https://doi.org/10.1007/s10551-015-2741-y. DOI: https://doi.org/10.1007/s10551-015-2741-y

Museta, G. M. 2011. “The Development of Business Rescue in South African Law.” LLM diss., University of Pretoria. https://www.academia.edu/download/80584968/dissertation.pdf.

National Union of Metalworkers of South Africa and Others v VR Laser Services (Pty) Limited and Others [2020] ZAGPJHC 47; [2020] 2 All SA 536 (GJ) (March 10, 2020). https://www.saflii.org/za/cases/ZAGPJHC/2020/47.html.

Neergaard, M. A., F. Olesen, R. S. Andersen, and J. Sondergaard. 2009. “Qualitative Description–The Poor Cousin of Health Research?” BMC Medical Research Methodology 9 (1): 1–5. https://doi.org/10.1186/1471-2288-9-520. DOI: https://doi.org/10.1186/1471-2288-9-52

Panicker, S., and M. J. Manimala. 2015. “Successful Turnarounds: The Role of Appropriate Entrepreneurial Strategies.” Journal of Strategy and Management 8 (1): 21–40. https://doi.org/10.1108/JSMA-06-2014-0050. DOI: https://doi.org/10.1108/JSMA-06-2014-0050

Pretorius, M. 2004. “Managing a Troubled Business.” In Managing Growth: A Guide for Entrepreneurs, edited by G. H. Nieman, and M. Pretorius. Juta.

Pretorius, M. 2016. “The Debtor-Friendly Fallacy in Business Rescue: Agency Theory Moderation and Quasi Relationships.” Southern African Journal of Economics and Management Sciences 19 (4): 479–96. https://doi.org/10.4102/sajems.v19i4.1385. DOI: https://doi.org/10.4102/sajems.v19i4.1385

Pretorius, M. 2017. “A Framework for Turnaround Practitioners to Assess Reasonable Prospect for Ventures Operating in the Zone of Insolvency.” South African Journal of Business Management 48 (4): 57–70. https://doi.org/10.4102/sajbm.v48i4.43. DOI: https://doi.org/10.4102/sajbm.v48i4.43

Pretorius, M. 2018a. “Business Rescue Decision-Making: Post-Mortem Evaluation of an ‘Orgy.’” South African Journal of Economic and Management Sciences 21 (1): 1–14. https://doi.org/10.4102/sajems.v21i1.1622. DOI: https://doi.org/10.4102/sajems.v21i1.1622

Pretorius, M. 2018b. “Stakeholder Dynamics Moderation for Distressed Firms Entering Turnaround and Business Rescue: Who and What Counts.” International Journal of Management and Decision Making 17 (3): 299–321. https://doi.org/10.1504/IJMDM.2018.093499. DOI: https://doi.org/10.1504/IJMDM.2018.093499

Pretorius, M., and G. T. D. Holtzhauzen. 2008. “Critical Variables of Venture Turnarounds: A Liabilities Approach.” Southern African Business Review 12 (2): 89–107. https://hdl.handle.net/10520/EJC92871.

Pretorius, M., and G. T. D. Holtzhauzen. 2013. “Business Rescue Decision Making Through Verifier Determinants: Ask the Specialists.” South African Journal of Management Sciences 16 (4): 472–80. https://doi.org/10.4102/sajems.v16i4.450. DOI: https://doi.org/10.4102/sajems.v16i4.450

Pretorius, M., and W. Rosslyn-Smith. 2014. “International Guidelines for Business Rescue Plans.” South African Business Review 18 (2): 108–39. https://doi.org/10.25159/1998-8125/5681. DOI: https://doi.org/10.25159/1998-8125/5681

Rajan, U., A. Seru, and V. Vig. 2015. “The Failure of Models That Predict Failure: Distance, Incentives, and Defaults.” Journal of Financial Economics 115 (2): 237–60. https://doi.org/10.1016/j.jfineco.2014.09.012. DOI: https://doi.org/10.1016/j.jfineco.2014.09.012

Rajaram, R., A. M. Singh, and N. S. Sewpersadh. 2018. “Business Rescue: Adapt or Die.” South African Journal of Economic and Management Sciences 21 (1): 1–13. https://doi.org/10.4102/sajems.v21i1.2164. DOI: https://doi.org/10.4102/sajems.v21i1.2164

Ramnanun, K., S. Pillay, and R. Rajaram. 2020. “Evaluating Sources and Forms of Post-Commencement Business Rescue Finance in KwaZulu-Natal, South Africa.” Academy of Accounting and Financial Studies Journal 24 (6): 1–13.

Republic of South Africa. 2008. South African Companies Act 71 of 2008. Government Gazette 421, no. 32121. http://www.info.gov.za/view/DownloadFileAction?id=98894.

Rosslyn-Smith, W. 2024. “Investigating the Confidence Business Leaders Have in Business Rescue.” African Journal of Economics and Management Studies. https://doi.org/10.1108/AJEMS-08-2023-0304. DOI: https://doi.org/10.1108/AJEMS-08-2023-0304

Rosslyn-Smith, W., and N. V. A. De Abreu. 2022. “Informing the Vote: The Business Rescue vs Liquidation Decision.” Southern African Business Review 25: 1–22. https://doi.org/10.25159/1998-8125/8564. DOI: https://doi.org/10.25159/1998-8125/8564

Rosslyn-Smith, W., N. V. A. De Abreu, and M. Pretorius. 2020. “Exploring the Indirect Costs of a Firm in Business Rescue.” South African Journal of Accounting Research 34 (1): 24–44. https://doi.org/10.1080/10291954.2019.1667647. DOI: https://doi.org/10.1080/10291954.2019.1667647

Rosslyn-Smith, W., and M. Pretorius. 2015. “Stakeholder Expectations of the Business Rescue Plan from a South African Perspective.” Southern African Journal of Entrepreneurship and Small Business Management 7 (1): 1–35. https://doi.org/10.4102/sajesbm.v7i1.4. DOI: https://doi.org/10.4102/sajesbm.v7i1.4

Saarijärvi, M., and E. L. Bratt. 2021. “When Face-to-Face Interviews Are Not Possible: Tips and Tricks for Video, Telephone, Online Chat, and Email Interviews in Qualitative Research.” European Journal of Cardiovascular Nursing 20 (4): 392–96. https://doi.org/10.1093/eurjcn/zvab038. DOI: https://doi.org/10.1093/eurjcn/zvab038

Saunders, M. N. K., and K. Townsend. 2018. “Choosing Participants.” In Sage Handbook of Qualitative Business and Management Research Methods, edited by C. Cassell, A. L. Cunliffe, and G. Grandy. SAGE. https://doi.org/10.4135/9781526430212.n28. DOI: https://doi.org/10.4135/9781526430212.n28

Schendel, D., G. R. Patton, and J. Riggs. 1976. “Corporate Turnaround Strategies: A Study of Profit Decline and Recovery.” Journal of General Management 3 (3): 3–11. https://doi.org/10.1177/030630707600300301. DOI: https://doi.org/10.1177/030630707600300301

Shepherd, D. A. 1999. “Venture Capitalists’ Assessment of New Venture Survival.” Management Science 45 (5): 621–32. https://doi.org/10.1287/mnsc.45.5.621. DOI: https://doi.org/10.1287/mnsc.45.5.621

Smith, M., and C. Graves. 2005. “Corporate Turnaround and Financial Distress.” Managerial Auditing Journal 20 (3): 304–20. https://doi.org/10.1108/02686900510585627. DOI: https://doi.org/10.1108/02686900510585627

Southern Palace Investments 265 (Pty) Ltd v Midnight Storm Investments 386 (Pty) Ltd [2021] ZAWCHC 442; 2022 (2) SA 423 (WCC).

Sparkes, A. C., and B. Smith. 2014. Qualitative Research Methods in Sport, Exercise and Health: From Process to Product. Routledge. https://doi.org/10.4324/9780203852187. DOI: https://doi.org/10.4324/9780203852187

Sutton, R. I., and A. L. Callahan. 1987. “The Stigma of Bankruptcy: Spoiled Organizational Image and Its Management.” Academy of Management Journal 30 (3): 405–36. https://doi.org/10.2307/256007. DOI: https://doi.org/10.2307/256007

Swart, C., and M. Lombard. 2015. “Business Rescue: The Uncertainty About Sureties – Tuning Fork (Pty) Ltd T/A Balanced Audio v. Jonker.” Journal of Contemporary Roman-Dutch Law 78: 521–33.

Timmons, J. A., and S. Spinelli. 2007. New Venture Creation: Entrepreneurship for the 21st Century. 8th ed. McGraw-Hill.

Tobin, G. A., and C. M. Begley. 2004. “Methodological Rigour Within a Qualitative Framework.” Journal of Advanced Nursing 48 (4): 388–96. https://doi.org/10.1111/j.1365-2648.2004.03207.x. DOI: https://doi.org/10.1111/j.1365-2648.2004.03207.x

Tuning Fork (Pty) Ltd t/a Balanced Audio v Jonker and Another 2014 (4) SA 500 (WCC).

Wan, W.Y., and C. Watters. 2021. “Mandatory Disclosure in Corporate Debt Restructuring via Schemes of Arrangement: A Comparative Approach.” International Insolvency Review 30 (1): 111–31. https://doi.org/10.1002/iir.1425. DOI: https://doi.org/10.1002/iir.1425

White, M. J. 1989. “The Corporate Bankruptcy Decision.” Journal of Economic Perspectives 3 (2): 129–51. https://doi.org/10.1257/jep.3.2.129. DOI: https://doi.org/10.1257/jep.3.2.129

Yamakawa, Y., and M. S. Cardon. 2017. “How Prior Investments of Time, Money, and Employee Hires Influence Time to Exit a Distressed Venture, and the Extent to Which Contingency Planning Helps.” Journal of Business Venturing 32 (1): 1–17. https://doi.org/10.1016/j.jbusvent.2016.10.002. DOI: https://doi.org/10.1016/j.jbusvent.2016.10.002

Yin, R. K. 1994. Case Study Research: Design and Methods. 2nd ed. SAGE.