For many business owners and directors in Australia, it may appear as if company administration is a process only the court can enact. However, there is another option.
Voluntary administration stands as another avenue when an entity is experiencing financial troubles, so how exactly does it work, and what do you need to know?
It's time to take a detailed look at the process of voluntary administration as well as the various objectives and considerations of the process.
Understanding what it is
Voluntary admission is a process that's essentially designed to find another option for a business, and maximise the chances of the company continuing to operate. It's important to note that this may not necessarily mean the business continues to exist in its current form, but may instead find a new way to operate.
If it's not feasible to do so, then the operations are wrapped up as quickly as possible, which results in a better outcome for the creditors of the company than may have resulted if the company was placed into liquidation immediately.
During this process, directors appoint an administrator (which is subsequently ratified by creditors) who takes control of operations. They then start the process of assessing what needs to be done, and the best way to achieve this.
"The role of the voluntary administrator is to investigate the company's affairs, to report to creditors and to recommend to creditors whether the company should enter into a deed of company arrangement, go into liquidation or be returned to the directors," the Australian Securities & Investments Commission explained.
This may involve salvaging part of the company (or all of it), carrying out a restructuring process that allows the business to continue operating or introducing any measures that could result in a better outcome for creditors.
It's also important to consider that creditors will often prefer this process, as it means they can collectively vote on its acceptance.
What do you need to do as a director?
Directors have a number of responsibilities prior to a company entering into voluntary administration.
They need to:
- Prevent insolvent trading.
- Maintain records that explain the transactions and financial position of the business.
- Not use their position to gain a personal advantage or cause any detriment to the business.
- Directors also continue to play an essential role in the company during a voluntary administration.
It's clear that voluntary administration can be a complicated process without the right assistance.
To learn more about voluntary administration, as well as the various considerations and nuances, reach out to the experienced professionals at Corporate Lifeline. We're able to guide you through these tricky processes and find other options for your business.
