Contending with financial difficulties is a simple fact of business for many. As stressful as it can be to find yourself in this situation, Australia’s insolvency provisions mean help is readily available. Voluntary Administration is one form of assistance that aims to maximise returns for creditors, protect jobs and allow companies to recover from unfavourable positions. Without having to enter into liquidation, a Voluntary Administrator can help a business assess its options and reach a beneficial agreement with creditors. In this article, we will look at who can appoint a voluntary administrator and how the process impacts outcomes for companies and creditors.
What Is Voluntary Administration?
Voluntary administration is an insolvency process that allows companies to manage severe financial difficulties. A company can enter into voluntary administration if it’s unable to pay its debts (known as insolvency), or if the directors suspect that it’s likely to become insolvent. Entering into voluntary administration provides the directors of a company breathing room to assess the situation, deal with creditors and develop a solution for moving forwards.
Voluntary administration commences when an Administrator is appointed. The Administrator takes temporary control of the company to investigate its position, debts and assets. The Administrator will report findings to the company’s creditors and make recommendations on how best to proceed. For businesses that are struggling financially, voluntary administration offers a reprieve from creditors, increases the chances of the business’ survival and aims to improve outcomes for all parties involved.
Who Can Appoint a Voluntary Administrator?
Voluntary administration can be commenced by the directors of a company, a liquidator or by secured creditors with substantial interests in the business:
- Company Directors. Voluntary administration is often initiated by the directors of the company. If the directors resolve that the company is insolvent, or that it is likely to become insolvent, a Voluntary Administrator can be appointed.
- Liquidators. A Registered Liquidator or Provisional Liquidator may appoint an Administrator with the court’s approval. This typically occurs when a company is in liquidation and the Liquidator finds that creditors would be better served by the outcomes of voluntary administration.
- Secured Creditors. The secured creditors of an insolvent company may have the power to appoint an administrator. If a secured creditor holds security over the “whole, or substantially the whole,” of a company’s property, they may be entitled to enforce their interest through the voluntary administration process.
The Outcomes of Voluntary Administration
Voluntary administration is designed to be a flexible solution that allows businesses to reach an agreement with creditors. Rather than simply moving to liquidation, an Administrator can assess the company’s position and develop a strategy that maximises returns and improves the chance of the business’ survival. During the voluntary administration process, the Administrator will take charge of the company, assess its situation and make recommendations on how to proceed.
The voluntary administration period typically lasts 25 to 30 business days and results in one of three outcomes:
- The administration process is completed and the company is allowed to trade-on under the control of its directors.
- The company is immediately wound up in liquidation, with the Administrator typically being appointed as the Liquidator.
- The majority of creditors accept a Deed of Company Arrangement to repay some, or all, of the company’s debts.
In some cases the Administrator will recommend that creditors enter into a binding Deed of Company Arrangement (DOCA) with an insolvent business. An approved DOCA eliminates the possibility of insolvent trading claims and often allows the company to continue trading. A DOCA maximises the chances of the company surviving and provides a better return to creditors than liquidation.
Business Struggling to Meet its Obligations? Contact SV Partners for Support
Financial strain is an unfortunate part of doing business. When the situation is managed effectively, it’s possible to maximise the chance of your company’s survival. Early action is critical, and the support of experienced financial advisors like SV Partners can go a long way to recovering your business. The SV Partners team are experienced Administrators and Liquidators. We provide voluntary administration services to assess your situation and develop a plan that looks after you, your business and your creditors. Our Voluntary Administrators understand how stressful your situation can be, so we always strive to provide a supportive and seamless process. If you suspect your company is struggling, contact us for a confidential consultation, or call 1800 246 801 to talk to our team directly.