In 2011 a new
Due to the importance of the business rescue practitioner in the overall success of a rescue, the research focused on establishing competencies required to be a successful practitioner.
The research was undertaken in South Africa between 2015 and 2017.
A mixed methods research approach was utilised to identify the important competencies of a successful practitioner. A survey was conducted with the membership of the Turnaround Management Association of Southern Africa. The survey was mailed to 130 members and the response rate was 54%. The survey was complemented by undertaking interviews with 7 of the top 10 business rescue practitioners, according to their number of practitioner appointments.
The original contribution to knowledge of this study is the identification of a set of competencies that can be utilised to accredit business rescue practitioners and the emphasis on an accounting qualification and effective cash management skills that a successful practitioner must possess.
The knowledge generated from this research will benefit business rescue practitioners, the financial sector and stakeholders of companies intending to go into a legislated business rehabilitation.
Financial distress was originally defined by Beaver in 1966 as bankruptcy, insolvency, liquidation, a default on loan obligations or the inability to meet dividend payments (1966 in Muller, Steyn-Bruwer & Hamman
Based on the definitions by Beaver and Outecheva, financial distress is characterised by a lack of resources that results either in an involuntary business closure or an attempted restructure. Financial distress occurs when a firm’s promises to creditors are broken or are honoured with difficulty. It may result in dismantling and selling the firm’s assets (Senbet & Wang
There are many countries that have adopted a legal framework to facilitate the turnaround and continued existence of financially distressed firms. The South African business rescue legislation defines financial distress as a situation in which a company is reasonably unlikely to be able to pay all of its debts as they become payable and due within the immediate ensuing 6 months, or it appears to be reasonably likely that the company will become insolvent within the immediate ensuing 6 months (RSA
According to Blazy, Martell and Nigam (
Bradstreet (
Section 138 of the
There are no clear criteria or prerequisites in terms of skill or experience for appointing a business rescue practitioner, other than those highlighted in the discussion on Section 138 (Pretorius
A major oversight in the appointment of business rescue practitioners is the absence of a procedure for their accreditation. An accreditation process will alleviate some of the concerns relating to the competency of business rescue practitioners, the exorbitant fees they charge, the inability to complete the task on time and shortcomings relating to practitioners adhering to the reporting requirements (Voller
The lack of a proper accreditation system for business rescue practitioners has resulted in several criticisms of South African business rescue practitioners. As mentioned, these relate to poor quality of work and exorbitant fees charged (Pretorius
According to Midanek (
Economic Monetary Value = Probability of Successful Turnaround * Value of the Distressed Business.
The above equation demonstrates the value of appointing a successful business rescue practitioner to a financially distressed business. It illustrates the economic value created when a financially distressed company is successfully rehabilitated. Due to the role of the business rescue practitioner in the success of a rescue, it follows that the appointment of a competent practitioner will enhance the monetary value of the distressed business. The appointment of a competent practitioner will be facilitated by the establishment of accreditation criteria.
The benefit of establishing an accreditation framework, specifying the competencies of a business rescue practitioner, is that the risk of appointing an unsuitable professional as a practitioner is reduced. A suitably accredited practitioner will contribute towards the survival of a distressed firm, thereby enabling the continued existence of the firm (Baird
White (1959, cited in Delmarie de List & Winterton
In an effort to establish a set of characteristics that define a successful and high performing turnaround management professional (TMP), Baird (
Baird (
Level of ability to communicate transparently and quickly with all stakeholders.
Ability to implement effective cash management strategies.
Amount of increase in the distressed company’s profitability achieved and speed with which results were achieved.
The second phase of Baird’s research involved the utilisation of a questionnaire completed by turnaround management professionals to identify characteristics of a successful turnaround practitioner. The results of his research are illustrated in
Factors leading to turnaround manager success.
In order to recommend competencies and educational requirements to achieve these competencies to the CIPC, Pretorius (
Further research, conducted by Pretorius (
Focus of research.
Existing research | Research focus |
---|---|
Pretorius ( |
The research seeks to build on existing literature by identifying the educational qualifications and skills that are required to be a successful business rescue practitioner. |
As reflected in
A key finding of the literature review was an absence of academic literature on the qualifications of a successful business rescue practitioner and hence the need to undertake empirical research to develop knowledge in this field. This shortcoming in the literature has resulted in the inability to rank educational competencies required to be a successful business rescue practitioner.
These limitations provided justification to engage in further research to extend the literature of business rescue. The empirical study therefore focused on developing a set of qualifications required to be a successful business rescue practitioner in South Africa.
In order to meet the objectives of the research and to harness and develop new knowledge in the field of business rescue, it was important to adopt a complementary mixed methods approach to satisfy the research objectives. A complementary mixed methods approach entails the use of both a quantitative and a qualitative approach. The usage of this approach is supported by Creswell (
Having justified the need for a mixed methods approach to meet the research objectives, it was important for the research design to reflect a comprehensive strategy that would solve the research problem (Leedy & Ormrod
The questionnaire, comprising closed-ended questions, was used to address the objectives of this study. The questionnaire was answered by the members of the TMA-SA, a group of turnaround and business rehabilitation experts. The questionnaire required the TMA-SA membership to:
Rank the first and second most important qualification that a business rescue practitioner should possess.
Rank the first, second and third most important skill that a business rescue practitioner must possess.
Provide and explain their views on the necessity of an exam to become an accredited business rescue practitioner.
The data were analysed using graphical statistics (bar graphs and frequency tables) and inferential statistics (chi-square tests of independence and non-parametric tests such as Mann Whitney U tests).
For the qualitative research, 7 of the top 10 business rescue practitioners were interviewed. An advantage of the interview was that the researcher could gain considerable insight from each business rescue practitioner based on their personal experience.
There are disadvantages associated with using in-depth interviews as an instrument for data collection. The results are dependent on the researcher’s interpretation and it is an expensive process to conduct interviews (Zikmund et al.
The interviews with business rescue practitioners were able to establish information that could be utilised to meet the research objectives. The interview schedule was constructed in a manner that would obtain feedback from the top 10 business rescue practitioners relating to the competencies of a business rescue practitioner. The following questions were asked:
What impact will the establishment of accreditation criteria for business rescue practitioners have on a business rescue?
What are some of the competencies or qualifications that a successful business rescue practitioner should possess?
Who should establish the accrediting body?
The duration of each interview was approximately 1 h and it was recorded for analysis. The data was analysed using content analysis.
The first question of the survey required responses to the two most important qualifications required to be a successful business rescue practitioner. The feedback is illustrated in
Important qualifications required to be a successful business rescue practitioner.
According to
Possession of an accounting qualification will also facilitate the development of an improved business rescue plan. Pretorius (
Approximately 26% of the respondents ranked the accreditation of a turnaround management professional as the most important skill that a successful business rescue practitioner should possess. Whilst Section 138(a) of the
A Levene’s test for the equality of variances was conducted to investigate if significant differences exist between an accounting qualification and accreditation as a turnaround management professional. The test statistic of 3.125 and a
A legal qualification was ranked as the least important qualification. Although the business rescue process is non-judicial and commercial in nature, there remains a high reliance on courts to ensure compliance (Ensor
Overall, it can be concluded that a successful business rescue practitioner must possess an accounting qualification or be an accredited TMP. In addition to a qualification, a successful business rescue practitioner must possess certain important skills, as discussed next.
The second question related to the three most important skills required to be a successful business rescue practitioner. The results of the most important skills are presented in
Important skills required to be a successful business rescue practitioner.
According to
Effective cash management relates to the raising of post-rescue funding and the effective management and utilisation of cash resources during a rescue.
Existing literature supports the generation of cash as vital to a successful turnaround or business rescue (Carter & Van Auken
Another important skill that that was identified was the 5 to 25 years of experience as a turnaround management professional. It is consistent with the earlier finding on the importance of a qualification as a TMP.
These findings, however, contradict earlier research which concluded that enhanced collaborative skills are the central and most important competency that a business rescue practitioner must possess (Pretorius
In an effort to develop a framework for the accreditation, a further question dealt with the need for a written examination.
The final quantitative question related to the necessity of a written examination as part of the accreditation process. The results are presented in
Need for a written examination.
It is evident from
A consensus view of interviewees is that the establishment of accreditation criteria will have an extremely positive impact on the business rescue sector. This view was driven by a recognition that the responsibilities and tasks of a business rescue practitioner are distinctly different from any other profession. Therefore, a separate skills set is required to become a successful business rescue practitioner. An accreditation framework consisting of strict criteria will equip business rescue practitioners with the necessary skills to ensure successful business rescues. Some interviewees suggested that the accreditation process is essential and not negotiable. They pointed to their experience of many unsuitable practitioners that appear on the CIPC panel. The establishment of accreditation criteria will rectify this adverse situation.
There is thus no doubt that the establishment of accreditation criteria will have a positive impact on business rescue. It will legitimise the profession and increase the potential for successful business rescues. An improvement in the expertise and qualifications of business rescue practitioners will improve the effectiveness of practitioner performance.
This question served to build on the previous question relating to the necessity of accrediting business rescue professionals. Responses to this question can generate knowledge in support of the research objective to develop a set of competencies required to be a successful business rescue practitioner. The interviewees indicated that an individual who possesses only a single skill (such as only a legal or accounting skill) will not be a successful business rescue practitioner. It was evident that the interviewees view a successful business rescue practitioner as having a multitude of skills and qualifications. A successful business rescue practitioner must possess effective legal, restructuring, accounting, and mediation and conflict resolution skills (
Competencies required to be an effective business rescue practitioner.
The legal skills must not be of a general nature or focused on an area that is not related to financial distress or corporate rehabilitation. The skills must be related to contractual, company and insolvency law. A person trained as a criminal lawyer only will not possess the necessary legal skills for business rescue. In addition to the legal skills, a successful practitioner must possess accounting and financial skills to sufficiently understand and assess the financial performance of the distressed business. The accounting skills must specifically relate to the rehabilitation of a business. The skills must enable the practitioner to facilitate the rehabilitation and to generate cash for the distressed entity.
In addition to possessing relevant legal and accounting skills, it is important for a business rescue practitioner to have conflict resolution, mediation and negotiation skills. An interviewee referred to these skills as ‘political skills’, which include the ability to negotiate and mediate an outcome that considers the interests of various affected parties. Conflict resolution, mediation and negotiation skills must be complemented by skills to effect a successful rehabilitation. The interviewees felt that restructuring and turnaround management skills are vital to successfully rescue a financially distressed business.
Four interviewees acknowledged the difficulty for an individual to possess these diverse skills. As a solution to this difficulty, they suggested a joint appointment for rescues where more than one practitioner is appointed. This will ensure that there is sufficient expertise devoted to a business rescue. There was considerable support for joint appointments so that one practitioner complements the weakness of another. The interviewees also suggested the enforcement of joint appointments at the initial phase of a career as business rescue practitioner which will encompass a joint appointment of an inexperienced practitioner with a more experienced managing practitioner. This arrangement will benefit the company in business rescue by ensuring that there are adequate skills for a successful rehabilitation and it will facilitate a transfer of skills to the newly appointed business rescue practitioner.
An interviewee recommended that businesses comprising a single person, such as a one-man consultancy, must not be a business recue practitioner. In order to be successful, a practitioner must possess proper infrastructure, including office and administrative support. The practitioner must also have a proper support team to ensure that he has access to the necessary legal, accounting, turnaround and mediation skills.
An accrediting body is required to establish, implement and maintain the accreditation process for business rescue practitioners. A majority of four interviewees felt that the business rescue profession must be self-regulated. The self-regulatory body must be responsible for the establishment and implementation of accreditation criteria. These interviewees did not support an active role by the government or the CIPC in the regulatory authority for the business rescue profession. They felt that the role of the CIPC must be limited to facilitating the creation of the regulator. However, the CIPC must not oversee the regulator or even serve on it. The regulator should be similar to the South African Institute of Chartered Accountants (SAICA). The Institute is created by an Act of parliament, but government does not play an active operational role. The regulator must serve as the accrediting body and must be self-governing.
One of the interviewees felt that there is no need for a separate accreditation body. His justification for not requiring an accreditation authority was that if the business rescue practitioner requires a professional qualification to be a practitioner, then that member is regulated by a professional body already. For example, if a practitioner plays a legal role, then he is already regulated by the law profession. It will be the same for the accountant. Therefore, there would be no need for a separate accreditation body. However, this minority view does not give due cognisance to the fact that specialist legal and financial skills are required to be a successful business rescue practitioner. An accredited attorney or accountant will require more skills, focusing on corporate law, cash management and turnaround procedures, to be effective as a business rescue practitioner.
In summary, although there are different views relating to the accrediting authority for business rescue practitioners, there is support for an independent authority to be established. The role of the government and the CIPC must be limited to facilitating the establishment of the accrediting body. The regulating authority must be independent and self-regulating rather than managed by government.
This study utilised triangulation to facilitate the identification of common themes (Leedy & Ormrod
Competencies of a successful business rescue practitioner.
Quantitative | Qualitative |
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An accounting qualification | Specific accounting skills relating to cash flow management |
Accreditation as a turnaround manager | Restructuring and turnaround management skills |
Effective cash management strategy skills | Specific legal skills relating to corporate law and financial distress |
A strong sense of decision-making | Mediation and conflict resolution skills |
According to
The interviewees stressed how important it is that a successful business rescue practitioner should possess restructuring and turnaround skills. A primary objective of the business rescue legislation is to achieve the rehabilitation or turnaround of a financially distressed business. Accordingly, the possession of effective turnaround skills will help to achieve the objective of the legislation. This finding is supported by the quantitative methodology results which indicated that accreditation as a turnaround manager is an important qualification for a successful practitioner.
The interviewees also stated that legal and accounting skills are required to be a successful business rescue practitioner. However, they emphasised that these skills must not be of a general nature and must be focused on corporate recovery, which requires knowledge of corporate law. Additionally, the accounting skills must facilitate the rehabilitation of a business. These skills must be focused on cash flow management and enable a practitioner to generate cash for the distressed business. The findings of the quantitative methodology rated the ability of a practitioner to implement effective cash management strategies as an important skill for a successful business rescue practitioner. The focus on cash management skills is warranted due to the lack of post rescue funding being rated as having the highest impact on a failed business rescue.
In the current research setting, the quantitative and qualitative approaches both highlighted similar trends and principles.
The most significant contribution of this study is the identification of competencies required to be a successful business rescue practitioner. The responsibilities of business rescue practitioners are multidimensional and they require a variety of competencies. Both the quantitative and qualitative research results emphasised the importance of the business rescue practitioner being competent in cash flow management and in the turnaround of financially distressed businesses. The quantitative methodology results indicated that the most important qualification required to be a successful business rescue practitioner is an accounting qualification and accreditation as a turnaround management professional. The important skills required to be a successful business rescue practitioner are the ability to implement effective cash management strategies and a strong sense of decision-making.
The findings of the qualitative methodology indicated that both legal and financial qualifications are required to be a successful business rescue practitioner. However, the accounting and legal skills must not be of a general nature. They must be focused in the areas of cash flow generation, financial distress and company law. These competencies must be complemented by conflict resolution and mediation skills.
Overall, the core competencies of a successful business rescue practitioner must include effective turnaround management skills and they must have sound legal and accounting knowledge that focus on the rehabilitation of a distressed business. The financial competencies must extend to the ability to effectively manage and generate cash flows.
The authors declare that they have no financial or personal relationship(s) that may have inappropriately influenced them in writing this article.
Both authors, R.R. and A.M.S. contributed equally to the article.