If you believe your business is insolvent and you are considering putting the company into voluntary administration, you’re making a wise decision that may end up saving your business from liquidation.
This article will provide an overview of Voluntary Administration. We’ll look at the duties of the administrator and how voluntary administration affects creditors, including employees.
Company directors often start the process and may regain control of their company from the administrator. We’ll point out where you can go for assistance and advice right now (yes, it is Corporate Lifeline!) and how you can avoid much of the stress involved with putting your company into voluntary administration.
The Voluntary Administration process
If a business is suffering from financial difficulties, the directors may decide to enter voluntary administration. This hands control of the company to an Administrator.
The Administrator
- continues to run the business’s affairs while investigating finances. The administrator will report to creditors on the company’s business, property and other assets and financial circumstances. The aim is to pay outstanding debts and to save the company, if possible.
- The final outcome of the process is the presentation of three options to decide the future of the business:
Put the company into liquidation
- The company will be wound up. A liquidator will be appointed to identify and sell the assets in order to pay all, or some, of the outstanding debts
Approve a Deed of Company Arrangement (DOCA)
- – The DOCA is an agreement between the company and the creditors. It documents an arrangement to repay all or part of the debt. The flexible arrangement may detail payment via a lump sum, instalments, from future profits, via the sale of assets or another agreement. When debts have been cleared, as documented, the company will be free of those debts and may resume trading.
End the voluntary administration and return control of the company to the directors
- financial investigations may have indicated the company can continue to trade and return to profitability.
- The administrator will give his opinion on each of the options and will explain which option provides the best outcome for the creditors.
A creditors viewpoint
Creditors have a certain amount of power during the voluntary administration process. In particular, during two meetings which the Administrator must hold:
First meeting of the creditors
- The creditors may vote, at the meeting, to:
1. Replace the administrator, who was originally appointed by the company directors
2. Form a ‘committee of inspection’
a. A subset of creditors, or representatives who will assist, advise and monitor the administrator.
Second meeting of the creditors
- This meeting will be a presentation of the three options available, liquidation, DOCA or resume trading, as explained above. Again this is subject to a majority vote by the Shareholders, based on the recommendation of the administrator.
A creditor is a secured creditor if they hold a security interest to secure their debt. This is normally the case with a mortgage or some bank loans. Otherwise, they are an unsecured creditor. Secured creditors should expect to take priority over unsecured creditors for the settlement of outstanding debts.
How are employees affected?
Employees are unsecured creditors but are normally prioritised for payment of outstanding wages and superannuation. As creditors, employees are able to attend and vote at the creditors’ meetings arranged by the administrator.
ASIC has a detailed guide to voluntary administration for employees.
What about the company directors?
By appointing an administrator, the directors may prevent the company from going into liquidation, although it is one of the three possible outcomes of voluntary administration.
Creditors have to cease demands for repayment of debt and, if a DOCA is accepted, the company may be able to return to normal trading after payment of outstanding debts, as agreed in the DOCA.
Directors should be aware the responsibilities of the administrator include conducting an investigation of the company’s financial dealings and any suspicious transactions and reporting back to ASIC about any possible offences. This includes trading while insolvent, which can have serious consequences resulting in possible criminal charges for directors.
What’s the best way to save the company?
Get in touch with Corporate Lifeline today! Delaying seeking financial assistance and advice is the downfall of many businesses which end up in liquidation.
While voluntary administration is a smart choice and might be the best chance of your business being successful in the future it is not the only option.
The Lifeline you need
Corporate Lifeline have rescued hundreds of Australian businesses from financial difficulties. We have trusted, proven solutions that may return your business to profitable, competitive trading.
Contact us for a free consultation. We are financial experts, we’ll look at all of the options available and if your company can be rescued, we will help you save it. We take care of the financial stress so you can take care of your business