Distressed debt recovery methods
Date
2011-06-23
Authors
van der Walt, Jan Vorster
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Abstract
The way banks recover distressed debt has become an important subject locally as
well as on international level. Dedicated conferences are held annually on the
benefit derived by using methods other than liquidation to recover distressed debt
and many forums advocate that alternative methods could yield better returns than
liquidation. Many first world countries around the world have adopted legislation
(such as the well known chapter 11 in the United States) to provide the necessary
protection and time for a business rescue plan to be developed and implemented
as an alternative to liquidation.
Legislation to this end in South Africa is contained in the Companies Act and is
known as judicial management. However, as set out in this research report, judicial
management proved to be unsuccessful as a distressed debt recovery method
and, historically, banks used liquidation as their only alternative to recover
distressed debt.
Lately, however, in the wake of international developments in the area, banks in
South Africa have become very innovative in the way they recover distressed debt.
Banks realise that liquidation as the sole distressed debt recovery method does not
yield acceptable returns and have been exploring other alternatives to yield better
results.
To this end, this research report identifies the various distressed debt recovery
methods that are available to and used by South African banks, as well as the
impact of key factors on the selection of one method above another to recover
distressed debt. As such, this research report developed a framework that can be
used by South African banks to identify the most appropriate distressed debt
recovery method given the impact of these key factors
Description
MBA - WBS
Keywords
Debt recovery, Banks and banking