The Accountant’s Guide to Working with a Voluntary Administrator

Voluntary administration is an insolvency procedure that brings in an external voluntary administrator to decide on the company’s next steps. Unlike liquidation, external voluntary administration won’t necessarily result in the company being wound down. For insolvent businesses and companies with cash-flow issues, the voluntary administration process can provide an opportunity by giving breathing space from certain types of creditor action, allowing the business to assess how they move forward.

Accountants can be an invaluable partner for an voluntary administrator tasked with identifying the key areas of a business that need to be reviewed during a voluntary administration.

The voluntary administration process

Voluntary administration can be initiated by the company directors or a secured creditor. Once the voluntary administration process is initiated, the company hits a “pause button” with reduced risk of action from creditors. During this process, which might last around one month, an external administrator is brought in and he or she takes over control of the company from the directors. The company’s assets are protected during the process, and the administrator’s role is to figure out a way to save the company if possible.

Three possible scenarios can result from voluntary administration.

  1. The company could be liquidated.
  2. A deed of company arrangement (DOCA) could be executed to allow the company to continue trading and pay off its creditors.
  3. The company could be returned to the control of the directors.

Accountants can assist the administrator in everything from investigating the company’s books to formulating a DOCA to help the business resume trading and return to profitability.

Assisting the external administrator

The director(s) (or secured creditors) can appoint the administrator, who must be a registered liquidator with the Australian Securities and Investments Commission (ASIC). The administrator may also be a qualified accountant and have extensive experience as an accountant. During the process of the voluntary administration the administrator may work with other accountants to investigate the company’s affairs and to formulate their final recommendation. The administrator could also work with specialist accounts who have significant experience with insolvency, tax, or DOCA-related issues.

  1. The investigation

After the first meeting of creditors, the voluntary administrator is required to make their assessment and report back to the creditors. This report summarises the results of his or her investigation of the company’s affairs.

Accountants working with the voluntary administrator can assist the administrator during both the investigation and the preparation of the report. For example, businesses with complex financial affairs can have extensive financial records that are time-consuming for the administrator alone to analyse. Accountants can assist with gathering evidence about total debts outstanding to the business, and which creditors are owed what.

The accountants will want to look into the cash-flow health of the business, as well as employee benefits and wages. Issues like non-payment of suppliers, credit issues with banks, and running at a loss can be identified by checking the books (if the books have been maintained accurately).

  1. The administrator’s report

Accountants assisting the voluntary administrator can also be of assistance during the report-writing stage. With their technical and numerical expertise in relation to the business, they may be able to assist in translating the findings into an easy-to-understand format for the creditors.

The administrator’s report should include enough information to help creditors understand the business, its assets and property, affairs, and financial situation. The purpose is to allow the creditors to have a solid understanding of the business before they attend the second creditors’ meeting, where the future of the business is decided.

The report should also cover what creditors might reasonably expect to receive in the event of the proposed course of action and what they might receive if the company is liquidated.

  1. The voluntary administrator’s statement

Like the voluntary administrator’s report, the voluntary administrator’s statement must be provided to creditors before the meeting. The statement sums up the voluntary administrator’s opinion on which option is best for creditors, whether it’s a return to the directors’ control, DOCA, or winding up and liquidation.

Accountants who are assisting the voluntary administrator as he or she conducts the investigation and writes their report can assist with supporting evidence for the administrator’s statement, particularly in the reasons for the options available. Creditors can benefit from having factual evidence with numbers and records to inform their decision and vote. As for the report, evidence relating to the company’s likely profitability, overall debt burden, and ability to pay off debt will be relevant here, and the accountant who’s helping the administrator will be well-place to contribute to this.

If a DOCA is proposed, you as the accountant can assist the administrator in putting together sufficient details about the DOCA to help the creditors with their decision. You’ll want to demonstrate with numerical proof how the company could pay off all or some of its debt.

  1. Strategic insights

Generally during the investigation, report-writing, and statement-writing stages, you as the accountant can assist the administrator with auditing financial statements, reviewing the books, and even using projections to predict how the business could resume trading and generate sufficient income to repay its debts. This should take into account compliance and tax implications. Again, projection or modelling could be helpful here to identify how the company can return to profitability.

In addition, as an accountant with prior knowledge of the business’ capabilities and process you could be of assistance with creating growth strategies and identifying ways to cut costs. In this way, you could assist the administrator with formulating a strong DOCA and a way forward towards profitability for the business.

Mackay Goodwin is a leading advisory firm specialising in corporate recovery, turnaround and restructuring. To find out more about how we can help your business in voluntary administration, explore our website for more information about our services or contact us directly today.