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There is no doubt that running a successful business is getting tougher and tougher in Australia. With competition white-hot, it is likely that many small to medium enterprises can wade into difficult financial waters.
During financial trouble, it is important that business leaders recognise their options – with one possibility being Voluntary Administration. Read on to find out what a Voluntary Administration is, how it can help your enterprise, and the key details of this process.
WHAT IS VOLUNTARY ADMINISTRATION?
As the name suggests, Voluntary Administration is an optional avenue for business leaders who are facing financial difficulty. This means that enterprises with the foresight and knowledge to predict issues may adopt the approach before the situation gets worse.
To maximise the chances of the company continuing, Voluntary Administration is a smart choice. Put simply, Voluntary Administration sees an entity appoint an independent External Administrator who takes full control of the company’s affairs to determine how the business will progress moving forward. If a business leader believes that their business could become insolvent in the near future, the appointment of an administrator is a positive step to make.
How long does an Administrator work with a business?
During this time, the administrator has to deal with the company’s affairs, conduct investigations and report their findings to the creditors. Depending on the situation, the administrator can also seek and order for an extension of time from the Court, to ensure they have enough time to assess the business in detail.
Over the course of the administration period, an administrator drafts and circulates open reports about what they have found – both positive and negative. These are discussed as part of meetings with creditors to ensure an open communication channel during the administration.
In fact, there are usually two meetings held during a Voluntary Administration, an initial meeting, and a major final meeting to finalise future plans.
What does an Administrator do?
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 with a recommendation to the creditors for the company to either be placed into liquidation or enter into a Deed of Company Arrangement.
What is the cost of Voluntary Administration?
The cost can be covered by the value of the company’s assets if they are being put to sale, or the company’s ongoing turnover if it continues to trade. We’ll make an assessment during your consultation and if there looks to be a shortfall, we may require a contribution to cover our costs.
What is a Deed of Company Arrangement?
Business directors and/or a third party formulate and propose the DOCA during a voluntary administration, before it is published in the administrator’s major report for creditors. Upon review of the DOCA, creditors are asked to accept the terms and pass a resolution that the company can execute the DOCA. This usually occurs as part of a major creditor meeting.
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
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