03 May Voluntary Administration: What is it and How Long Does it Take?
Companies facing financial troubles have a range of options available to them. Voluntary administration is a common option for businesses. As the name suggests, businesses will voluntarily enter into administration as a way to help navigate financial troubles and potentially avoid liquidation. Directors considering voluntary administration often wonder how long the process takes. In this article we’ll cover the voluntary administration process, how long it takes and the outcomes you can expect to see at the end of administration.
What is Voluntary Administration?
Voluntary Administration is a process that assists insolvent companies to assess their options and pursue the best course of action for both the business and its creditors.
A business that becomes unable to pay its debts when they are due is considered insolvent. Insolvency can occur for a variety of reasons, from simple misfortune through to poor management. When a business becomes insolvent, it’s important to deal with the issue as soon as possible. Rather than waiting until the business becomes unviable, voluntary administration allows the business to gain breathing room from its creditors and explore its options, including the possibility of continuing to trade.
How Long Does Voluntary Administration Take?
The voluntary administration process typically lasts between 25 to 30 business days.
To initiate the process, the company will appoint an independent Administrator to assess the business. The administrator takes control of the company, investigates its operations and then reports to creditors about the company’s affairs and financial circumstances. This report is made at a creditors’ meeting, at which point creditors may be allowed an additional 15 business days to accept the administrator’s Deed of Company Arrangement (DOCA).
In some circumstances, a court may grant extensions to the initial 25 day period. A court can also extend the creditors’ 15 day period to reach a decision regarding the DOCA.
What is the Purpose of Voluntary Administration?
The main purpose of voluntary administration is to give a business a temporary reprieve from its creditors and help directors find the best course of action for all stakeholders. During the 25-30 day administration period, the administrator assesses the company’s situation and makes recommendations to creditors. While the company is in voluntary administration, creditors will be unable to commence, continue or enforce their claims against the company without permission from the administrator or the court.
Once the administrator has finalised their investigations, they will report to creditors and provide their opinion on how to proceed. Administrators must present the following three options to creditors along with their recommendations on whether:
- The administration should be ended and company control returned to its directors.
- The company should be wound up and a liquidator appointed (with the administrator often becoming the liquidator).
- Creditors should approve a Deed of Company Arrangement to allow the business to pay some or all of its debts, and then be free of those debts.
During the administration period, the administrator will develop a Deed of Company Arrangement (DOCA). The DOCA proposes a plan that allows the business to repay the money it owes and have its debts forgiven by creditors. A DOCA may allow the business to continue trading while repaying its debts, thereby avoiding liquidation.
Is Voluntary Administration Right for Your Business? Let the SV Partners Team Guide the Way
When a company becomes insolvent, or if its directors suspect it might become insolvent, it’s important to take action early. Choosing voluntary administration gives your business the best chance of recovering from its financial difficulties and repaying outstanding debts. The expert team at SV Partners are experienced administrators and we can help your business reach the best outcome possible. We provide full support to all our clients, always striving to make stressful circumstances more manageable. For a confidential discussion about voluntary administration you can contact us online or phone 1800 246 801 and arrange a consultation.