When a business is struggling financially, its owners may consider Voluntary Administration as a way to restructure the company and allow it to continue operating. Voluntary Administration is a formal process administered by a licenced, independent administrator. The administrator will take control of the company and work with the creditors and shareholders to come up with a plan to restructure the business
In this article, we will explain why Voluntary Administration might be an option for a struggling business, describe the steps involved in the process, and outline what businesses can expect during Voluntary Administration.
What Is Voluntary Administration?
Voluntary administration is a process a business can go through to help manage and restructure its debts. It’s an alternative to bankruptcy and can provide some breathing room for a business facing financial difficulties.
The voluntary administration process begins when a company appoints an administrator. The administrator is responsible for assessing the company’s financial situation and developing a restructuring plan. This plan may involve selling off assets, renegotiating contracts, or cutting costs.
The administrator must also negotiate with creditors and try to reach agreements on debt repayment. If agreements can’t be reached, the administrator can apply to the court to have the company liquidated.
During the voluntary administration process, the company will be unable to make any changes without the approval of the administrator. This includes making new hires or firing employees.
The main benefit of voluntary administration is it allows businesses to avoid bankruptcy and continue operating as a going concern. It provides time for companies to restructure their finances and hopefully return to profitability.
Voluntary Administration is often used as a way for businesses to avoid bankruptcy. The administrator will develop a plan to repay the company’s debts over a period of time. This can help to ensure the business can continue operating and employees can keep their jobs.
Why Might a Business Consider Voluntary Administration?
A Voluntary Administration can provide a business with a number of benefits, including:
- The ability to restructure the business and its debts
- Protection from creditors while the restructuring process is underway
- The opportunity to appoint an expert administrator who will manage the business and negotiate with creditors on behalf of the company
- The likelihood the company will return to successful trading
The Steps Involved in the Voluntary Administration Process
This process begins when the business owner or directors decide to enter into Voluntary Administration. They then appoint an administrator who will take control of the company and its assets.
The primary role of the administrator is to try and rescue the business and its employees. They will review the company’s financial situation and make recommendations on how it can be turned around. If this is not possible, the administrator will work to sell the business and its assets.
The steps involved in Voluntary Administration are:
1. The directors or owners of the company approach an insolvency practitioner and request they enter into Voluntary Administration.
2. The insolvency practitioner appoints an administrator who takes control of the company and its assets.
3. The administrator reviews the company’s financial situation and makes recommendations on the best future for the business.
4. The administrator will recommend one of three options
- A Deed of Company Arrangement (DOCA)
- A formal agreement to pay off some, or all, of outstanding debts
- The creditors must vote to accept a DOCA
- Return the business to normal trading
- The administrator concludes the company can pay outstanding debts and continue trading. The company is returned to the control of the directors
- A liquidator is appointed to sell company assets to cover outstanding debts. The company will be wound up.
The Role of the Administrator in Voluntary Administration
The role of the administrator is to act as a neutral party to help manage the company and its affairs. The administrator’s main priority is to ensure the company complies with all legal and financial obligations, and to try and preserve the best value for the creditors. They will also work to find the best resolution for all parties involved. The administrator will liaise with the company’s directors, employees, creditors and other interested parties during the administration process.
Once voluntary administration has commenced, the company’s assets are protected from creditors and any legal action started against the company is put on hold. The administrator will have control of the company during the administration period. During this time, they will assess the company’s financial situation and develop a proposal for the best future of the business. This proposal will be presented to creditors at a meeting, where they will vote on whether to accept or reject it
What Businesses Can Expect During Voluntary Administration
You should seek advice from a finance professional if you are involved in voluntary administration. Generally, businesses can expect the following during Voluntary Administration
- The administrator will take over control of the company and will be responsible for making decisions on behalf of the company
- The administrator will review the company’s financial position to decide on the best outcome for creditors, employees and the company.
- The administrator will communicate with creditors and employees about the company’s financial situation and any plans for restructuring or selling
- Creditors may appoint a committee to represent their interests in the administration process
- Employees may be made redundant or have their wages reduced. If employees haven’t been paid in full, they are company creditors
- The administrator will make recommendations on the best way to proceed. Creditors make the final decision, via a vote.
How Voluntary Administration Can Help a Business Restructure and Continue Operating
When a business is struggling financially and is unable to pay its debts, Voluntary Administration can provide a way for the company to restructure and continue operating. Voluntary Administration (VA) is a process where the company’s directors voluntarily appoint an administrator to take control of the company. The administrator is a finance expert who may find options for the business the directors wouldn’t recognise.
The main goal of Voluntary Administration is to allow the company to continue trading while it restructures its debt. The administrator will also work with creditors to come up with a fair and manageable repayment plan for everyone involved.
Voluntary Administration can be a helpful way for businesses to restructure their debt and continue operating. By appointing an administrator, companies can give themselves time and breathing room to work on their financial problems with an experienced professional. The administrator will work with creditors to come up with a repayment plan which can help keep businesses afloat during difficult times.
Voluntary Administration FAQs
Some of the commonly asked questions include:
1. What is Voluntary Administration?
Voluntary Administration is a formal process allowing a company to appoint an administrator to deal with the company’s financial problems. The administrator will take control of the company and make decisions about how to restructure or wind up the business.
2. Why would a company consider Voluntary Administration?
There are a number of reasons why a company might consider Voluntary Administration, including:
– The company is struggling financially and cannot pay its debts
– The company is in dispute with its creditors
– The company is not compliant with ASIC regulations
3. What are the steps involved in Voluntary Administration?
There are six steps involved in the Voluntary Administration process:
– The company appoints an administrator
– The administrator reviews the company’s financial situation and decides whether to restructure or wind up the business
– The creditors vote on the proposed administration plan
– If the majority of creditors agree, the plan goes ahead and the administrator begins restructuring or winding up the business
– If the majority of creditors do not agree, the company goes into liquidation
4. What role does the administrator play in Voluntary Administration?
The administrator’s role is to protect the interests of the company and its creditors. They will make decisions about how to restructure or wind up the business and will work with creditors to come up with a plan everyone can agree on.
5. What should a business expect during Voluntary Administration?
A business should expect to continue trading as normal during Voluntary Administration, although it may be subject to certain restrictions. The administrator will keep creditors updated on proceedings, and will work towards restructuring or winding up the business as quickly as possible.
Your Next Steps
The first step in appointing an administrator is to contact an insolvency practitioner. Corporate Lifeline will provide you with assistance and help before you enter the process. We have registered administrators available.
The administrator will then take control of the company and its assets. They will assess the situation and make decisions about how to best restructure or sell the company. The administrator must act in the best interests of the company and its creditors.
Contact Corporate Lifeline today for advice on the best future for your business.