The in’s and out of Voluntary Administration
If your company is hampered by financial difficulties such as cash flow shortages and is unable to pay creditors debts as they fall due, then the director of a company has a mandatory obligation to avoid the company continuing to trade whilst insolvent. The director can elect to enter into Voluntary Administration, which is an insolvency procedure where the directors appoint an external administrator.
How can Voluntary Administration help?
A Voluntary Administration of a company can assist a company, through a qualified administrator, to improve its financial position and get the company back on its feet, through an arrangement with its creditors.
What are the advantages of Voluntary Administration?
A company that is placed into Voluntary Administration does not necessarily mean that is it the end of the company or business.
Advantages of placing a company into Voluntary Administration include:
- It gives statutory protection from legal action
- Allows the director time to refocus and improve the business
- The administration can improve the profitability of the company
- It permits negotiation with company creditors
- Stops insolvent trading.
- The company can continue to operate and trade.
- The director avoids personal liability
What happens in a Voluntary Administration?
When appointed, an administrator takes on the responsibility for trading, decision-making and all liabilities incurred during the administration process.
Within five business days of being appointed, an administrator must have a meeting of creditors, at which time the administrator’s appointment is ratified or an alternative administrator is appointed by a vote of the company’s creditors.
Within 28 days of appointment, a second meeting is held and a report is prepared to creditors detailing the investigations conducted by the administrator into the company’s affairs together witha recommendation to the creditors for the company to either be placed into liquidation or enter into a Deed of Company Arrangement.
What will a Voluntary Administration cost?
A Voluntary Administrator charges for work performed on an hourly basis. These costs are usually paid from the assets of the company and not payable by the director.