Premium
Secured Creditor Recovery Rates from Management Buy‐outs in Distress
Author(s) -
Citron David,
Wright Mike,
Ball Rod,
Rippington Fred
Publication year - 2003
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/1468-036x.00213
Subject(s) - creditor , business , insolvency , finance , principal (computer security) , audit , financial distress , financial system , accounting , debt , computer science , operating system
Buy‐out literature suggests that secured creditors will recoup substantial proportions of the funds they extend to finance the initial buy‐out. This paper uses a unique dataset of 42 failed MBOs to examine the extent of credit recovery by secured lenders under UK insolvency procedures and the factors that influence the extent of this recovery. On average, secured creditors recover 62 per cent of the amount owed. The percentage of secured credit recovered is increased where the distressed buy‐out is sold as a going concern and where the principal reason for failure concerns managerial factors. The presence of a going concern qualification in the audit report and the size of the buy‐out reduce the recovery rate by secured creditors.