Financial distress, reorganization and corporate performance

Prospects for financially distressed companies in Australia have improved since the introduction of voluntary administration (VA) as an alternative to liquidation. This paper investigates whether companies that reorganise can be distinguished from those that liquidate under VA. In addition, performance of reorganised companies is examined to determine variables that distinguish ‘successful’ from ‘unsuccessful’ reorganisations. Significant variables in the logistic regression models developed differ between the analyses. The results of the analyses have implications for policy makers regarding efficiency of the VA procedure, as it appears the reorganisation decision is biased toward permitting inefficient firms to reorganise.