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November 23, 2022

External Administration vs Voluntary Administration


Administration is one of the best ways for struggling businesses to navigate insolvency. During administration proceedings, the directors of an insolvent company can access financial expertise to resolve the situation, improve the chances of the business’ survival and repay debts to creditors. To provide assistance to all parties involved with an insolvent company, voluntary administration can be initiated either by internal or external stakeholders. In this article, we’ll be comparing external administration vs voluntary administration and discussing the differences between the two terms.

What Is Voluntary Administration?

Voluntary administration is an insolvency procedure that allows a company’s directors to access financial expertise and potentially save the company from liquidation. As the name suggests, voluntary administration proceedings are typically initiated from within the company, such as by its directors. In some circumstances, a secured creditor or a Liquidator may also be able to appoint a Voluntary Administrator.
For businesses that are insolvent, or are at risk of becoming insolvent, voluntary administration offers a reprieve from creditors and allows directors to develop a plan for moving forward. During this process, a Voluntary Administrator is appointed to take control of the company, assess its situation and make recommendations to creditors on how to proceed. A Voluntary Administrator may recommend that the business:

  • Be returned to the directors of the company
  • Be wound up in liquidation
  • Enter into a Deed of Company Arrangement to repay some, or all, of its debts

 

What Is External Administration?

While voluntary administration can be initiated by a third party – such as a secured creditor – there is no single “external administration” service. Rather, external administration is a general term that refers to insolvency situations where an External Administrator is appointed. External Administrators are independent insolvency professionals charged with saving or winding up businesses that are unable to repay debts to creditors. External Administrators are appointed during many different insolvency proceedings. Common types of External Administrators include:

  • Voluntary Administrators
  • Liquidators
  • Receivers
  • Restructuring practitioners
  • Insolvency practitioners

A company that is experiencing financial difficulties may also choose to engage turnaround management services. Turnaround management is typically designed to prevent businesses from falling into insolvency. It allows managers to access financial expertise and get the business back on track, similar to many of the services offered by External Administrators.

 

Your Rights as a Creditor

Dealing with an insolvent business can be a difficult experience. While there’s often no simple way to recover the money or goods you are owed, creditors may be entitled to apply to the Court to have an External Administrator appointed. If a business has failed to meet its financial obligations to you, your rights depend on whether you are a secured or unsecured creditor:

  • Unsecured creditors are any people or businesses that have provided goods and services to the company without some type of collateral. This may include parties such as suppliers, contractors and employees. As an unsecured creditor, you have the right to issue a statutory demand for payment of debts that exceed $2,000. If the company is unable or unwilling to pay, you may apply to the Court to have the company wound up in liquidation.
  • Secured creditors are people or businesses that hold a security interest over the business’ assets, such as a mortgage. Secured creditors are also entitled to make statutory demands for payment and appoint Liquidators, but they hold the power to appoint other External Administrators as well. As a secured creditor, you may be able to pursue debts by asking the Court to appoint a Receiver or Voluntary Administrator.

 

Talk to SV Partners for More About Voluntary Administration Proceedings

All businesses experience financial difficulties from time to time. When those issues stack up, it’s important to seek expert advice as soon as possible. A professional External Administrator can walk you through the options available and help you approach voluntary administration from the best possible position. If your business is in need of expert guidance, talk to the team at SV Partners. With years of experience as Administrators, our financial professionals have provided support to a wide range of businesses. Our collaborative approach to insolvency allows us to work with you and develop solutions that benefit your business, employees and creditors. To make an appointment you’re welcome to contact us online, or phone our confidential assist line on 1800 246 801.

Are you concerned about your financial position? Contact us now for an obligation free consultation on