Valuation practices under business rescue circumstances in South Africa
Background: A business rescue plan should indicate the benefits of adopting a business rescue plan as opposed to the benefits of immediate liquidation. Performing a valuation is thus a vital aspect of the business rescue process as the estimated values determine the amount to be divided between cred...
| Main Authors: | , |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
AOSIS
2021-04-01
|
| Series: | South African Journal of Economic and Management Sciences |
| Subjects: | |
| Online Access: | https://sajems.org/index.php/sajems/article/view/3721 |
| _version_ | 1819131452354199552 |
|---|---|
| author | Shaneen Conradie Christiaan Lamprecht |
| author_facet | Shaneen Conradie Christiaan Lamprecht |
| author_sort | Shaneen Conradie |
| collection | DOAJ |
| description | Background: A business rescue plan should indicate the benefits of adopting a business rescue plan as opposed to the benefits of immediate liquidation. Performing a valuation is thus a vital aspect of the business rescue process as the estimated values determine the amount to be divided between creditors and, if possible, shareholders. Conventional valuation methods have the underlying assumption that the business is a going concern (based on liquidy and solvency tests). However, a company in business rescue is not necessarily a going concern, nor in liquidation, leaving the company in a grey area in terms of valuation.
Aim: This research explored how the business rescue value of a financially distressed company is determined.
Setting: The setting for this study was South Africa.
Method: Thematic analysis of qualitative data collected through 11 semi-structured interviews with senior business rescue practitioners (BRPs).
Results: When the intention is to return the company to solvency, the BRPs prepared a short-term, undiscounted cash flow budget to determine the business rescue value, but without including a terminal value in the projected cash flows. In contrast, when the intention is to obtain a better return compared to immediate liquidation, BRPs follow an asset approach to determine the business rescue value. The results also showed that the business, digital and relational acumen of the BRP is a major influencer in the business rescue value.
Conclusion: The financial elements identified and substantiated in this study may serve as best practice guidance in the business rescue industry and lead to an expansion of the existing valuation theory. |
| first_indexed | 2024-12-22T09:15:44Z |
| format | Article |
| id | doaj.art-c0c98e67c8954a7d8c5937bf7f9bf23c |
| institution | Directory Open Access Journal |
| issn | 1015-8812 2222-3436 |
| language | English |
| last_indexed | 2024-12-22T09:15:44Z |
| publishDate | 2021-04-01 |
| publisher | AOSIS |
| record_format | Article |
| series | South African Journal of Economic and Management Sciences |
| spelling | doaj.art-c0c98e67c8954a7d8c5937bf7f9bf23c2022-12-21T18:31:19ZengAOSISSouth African Journal of Economic and Management Sciences1015-88122222-34362021-04-01241e1e1310.4102/sajems.v24i1.3721980Valuation practices under business rescue circumstances in South AfricaShaneen Conradie0Christiaan Lamprecht1School of Accountancy, Faculty of Economic and Management Sciences, Stellenbosch University, StellenboschSchool of Accountancy, Faculty of Economic and Management Sciences, Stellenbosch University, StellenboschBackground: A business rescue plan should indicate the benefits of adopting a business rescue plan as opposed to the benefits of immediate liquidation. Performing a valuation is thus a vital aspect of the business rescue process as the estimated values determine the amount to be divided between creditors and, if possible, shareholders. Conventional valuation methods have the underlying assumption that the business is a going concern (based on liquidy and solvency tests). However, a company in business rescue is not necessarily a going concern, nor in liquidation, leaving the company in a grey area in terms of valuation. Aim: This research explored how the business rescue value of a financially distressed company is determined. Setting: The setting for this study was South Africa. Method: Thematic analysis of qualitative data collected through 11 semi-structured interviews with senior business rescue practitioners (BRPs). Results: When the intention is to return the company to solvency, the BRPs prepared a short-term, undiscounted cash flow budget to determine the business rescue value, but without including a terminal value in the projected cash flows. In contrast, when the intention is to obtain a better return compared to immediate liquidation, BRPs follow an asset approach to determine the business rescue value. The results also showed that the business, digital and relational acumen of the BRP is a major influencer in the business rescue value. Conclusion: The financial elements identified and substantiated in this study may serve as best practice guidance in the business rescue industry and lead to an expansion of the existing valuation theory.https://sajems.org/index.php/sajems/article/view/3721business rescue practitionerbusiness rescue valuechapter 6companies actfinancial distressgoing concernliquidationvaluation |
| spellingShingle | Shaneen Conradie Christiaan Lamprecht Valuation practices under business rescue circumstances in South Africa South African Journal of Economic and Management Sciences business rescue practitioner business rescue value chapter 6 companies act financial distress going concern liquidation valuation |
| title | Valuation practices under business rescue circumstances in South Africa |
| title_full | Valuation practices under business rescue circumstances in South Africa |
| title_fullStr | Valuation practices under business rescue circumstances in South Africa |
| title_full_unstemmed | Valuation practices under business rescue circumstances in South Africa |
| title_short | Valuation practices under business rescue circumstances in South Africa |
| title_sort | valuation practices under business rescue circumstances in south africa |
| topic | business rescue practitioner business rescue value chapter 6 companies act financial distress going concern liquidation valuation |
| url | https://sajems.org/index.php/sajems/article/view/3721 |
| work_keys_str_mv | AT shaneenconradie valuationpracticesunderbusinessrescuecircumstancesinsouthafrica AT christiaanlamprecht valuationpracticesunderbusinessrescuecircumstancesinsouthafrica |