September 6, 2022

What Causes Turnaround Management?

Voluntary administration is one of many insolvency processes available to companies to help resolve financial difficulties they may experience. The process is a voluntary one, and it’s a solution that is typically pursued by Directors as a way to potentially avoid liquidation. Placing your company in voluntary administration should only be undertaken after you have received professional advice. To help shed light on the process, we are going to discuss voluntary administration and some of the things you need to know before deciding on a course of action.


What is Voluntary Administration?

Voluntary Administration is a process that seeks to help insolvent companies find a solution to financial difficulties. By entering into voluntary administration, an insolvent company can access the support and advice of an independent Administrator who will help to assess the business’ financial situation and develop an appropriate strategy for moving forward. Typically, to commence voluntary administration, the Directors of the company suspect the company is insolvent, or that it is likely to become insolvent, and can decide to appoint a Voluntary Administrator.


The Voluntary Administration Process

If your company becomes insolvent then it’s important to act quickly. Entering into voluntary administration gives a company access to an independent Voluntary Administrator who assesses the business and helps develop a plan for moving forward. During the voluntary administration process, unsecured creditors are prevented from continuing or commencing any claims against the company.

A Voluntary Administrator will thoroughly assess the company’s situation and financials over a 25-30 day period. At the end of this time, the Voluntary Administrator will present their findings and make a recommendation to creditors. There are typically three options available at the end of voluntary administration:

  1. The administration period ends and the company trades on under the control of its directors.
  2. The company is liquidated.
  3. Creditors approve a Deed of Company Arrangement 


Deeds of Company Arrangement

The objective of voluntary administrations is to find the best possible arrangement for everyone involved with an insolvent company. In some cases that means the business will be liquidated to allow creditors to recover their debts. Other times though, the Voluntary Administrator may recommend a binding agreement called a Deed of Company Arrangement (DOCA).

A DOCA is an arrangement between a company and its creditors that lays out the details of how the company’s affairs should be dealt with. DOCAs are designed to maximise the chance of the company’s survival and provide a better return to creditors than immediately winding up the business. Often, this means that creditors will accept partial payment of their debts, with the remainder being forgiven once the DOCA is complete.


The Role of Creditors in Voluntary Administration

The voluntary administration process is designed to help creditors recover more of the money they are owed. Rather than simply moving straight to liquidation, voluntary administration allows a company’s directors to work with financial experts to develop a plan of action.

This process involves input from creditors at two different meetings. The first meeting takes place within eight days of the start of the administration. The second meeting is held after the administrator has completed their investigations, where creditors vote on how to proceed and whether to accept the company’s DOCA. In most cases, votes are decided by the creditors who represent the majority in number and value.

All secured and unsecured creditors are welcome to attend these meetings. You are considered a creditor if:

  • The company owes you money for goods and services you supplied
  • You made loans to the company
  • You are owed products or services you have already paid for
  • Are an employee who is owed unpaid wages or entitlements (such as superannuation)


Considering Placing Your Company in Voluntary Administration? Talk to SV Partners First

While the voluntary administration process is an excellent opportunity to save a company from liquidation, it should only be undertaken with advice from financial professionals. The process isn’t suitable for every company, and there are many cases where financial stress advice can help you find an alternative.

The team at SV Partners are experienced Voluntary Administrators. We can offer a wealth of advice to your company if you are facing insolvency or considering entering into voluntary administration. Contact us to make an appointment, or feel free to phone us on 1800 246 801 for a confidential consultation with our team.

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