Original Research

The debtor-friendly fallacy in business rescue: Agency theory moderation and quasi relationships

Marius Pretorius
South African Journal of Economic and Management Sciences | Vol 19, No 4 | a1385 | DOI: https://doi.org/10.4102/sajems.v19i4.1385 | © 2016 Marius Pretorius | This work is licensed under CC Attribution 4.0
Submitted: 30 April 2015 | Published: 25 November 2016

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Marius Pretorius, University of Pretoria, South Africa

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Abstract

Tension often arises when Chapter 6 business rescue practitioners (BRPs) are appointed by directors to rescue their distressed businesses. Regulating by means of standard agency contracting becomes irrelevant in the resulting multiple relationships. Looking through the agency lens, using analytic autoethnography and compiling narratives, this paper explains the perceptions of what appear to be quasiagency relationships and obtains a better understanding of these. The findings suggest that the apparent principal-agent relationships suffer from asymmetries of goals, information access, informal power and diverging perceptions of moral hazard, transaction costs and adverse selection. As a solution, contracting has been shown to have limited value owing to outcome uncertainty and measurability. This is because the tasks of the BRP are non-programmable and term-dependent. The findings provide filing directors, shareholders, creditors, regulatory authorities and BRPs in this newly instituted regime, with enhanced understanding of how the relationships manifest in practice and overcome the non-contractibility of the newly formed relationships.


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Crossref Citations

1. Exploring entrepreneurial learning during formal business rescue processes: Insights from the South African experience
Anéa Burke-le Roux, Marius Pretorius
SA Journal of Human Resource Management  vol: 15  year: 2017  
doi: 10.4102/sajhrm.v15i0.733