Exploring the indirect costs of a firm in business rescue

Abstract

It may be argued that the indirect costs of financial distress are substantially higher than the direct costs. Consequently, indirect costs of participating in a formal turnaround may hinder the success of a reorganisation attempt. This study set out to explore the indirect costs financially distressed firms face as a consequence of participating in business rescue in South Africa. Due to the implicit nature of these costs, the focus was placed on investigating and identifying the sources of the indirect costs associated with business rescue. This study employed a qualitative research design, whereby semi-structured interviews were conducted with 13 business rescue practitioners. The study confirmed that firms may experience six difficulties during business rescue. However, there are several factors that influence the severity of these difficulties. Conversely, it appears that indirect costs may also offer firms several benefits. The results of the study may assist affected parties, as they offer some insight and clarity on the indirect costs of business rescue. Understanding indirect costs may assist stakeholders involved in the process to find strategies that will help to preserve the value of the firm and reduce the negative impact for all stakeholders involved.

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