A critique of rescuing failing businesses: A legal perspective
Authors Fidelis Manyuchi
Affiliations: LLM Candidate University of the Witwatersrand, Johannesburg
Source: Journal of Corporate and Commercial Law & Practice, The, Volume 1 Issue 1, 2015, p. 44 – 62
The South African legal field has a novel concept of business rescue. This concept is mainly premised on the management, by a business rescue practitioner, of transaction costs that cause business entities to get into financial distress. Through the use of three case studies, this article introduces and demonstrates the importance of information asymmetry costs in the business rescue arena. Information asymmetry costs mainly cause losses to a business entity and also determine the success of proceedings towards business rescue, the assumption and execution of the business rescue plan by the business rescue practitioner. The study therefore, calls for a holistic approach to business rescue that combines analysis of transaction costs and information asymmetry costs throughout the business rescue processes.