Voluntary administration is the process whereby a business in financial distress is assessed by an independent administrator to determine the best financial resolution for that company. The administrator could be appointed by the company directors, the creditors of a company, or by the court.
The voluntary administrator should be a registered liquidator with ASIC, and may also be a member of professional bodies such as Chartered Accountants Australia & New Zealand and the Australian Restructuring Insolvency & Turnaround Association (ARITA).
The administrator will investigate the company’s finances, review the available options, and recommend a plan to either:
When a business enters voluntary administration, everything that has been going on until then is frozen. Creditors can’t take legal action to enforce their claims against the company, owners and landlords can’t recover their property, and trading is temporarily paused – meaning the company’s directors can’t be held liable for trading whilst insolvent.
Voluntary administration involves strict procedures and time limits that must be adhered to by the voluntary administrator. Once appointed, he/she must ensure that the following actions take place:
A Deed of Company Arrangement is essentially a deal that is offered to the creditors. Its purpose is to maximise the chances of the company continuing to operate, or alternatively to provide a better return for creditors than they would otherwise receive if the company was immediately liquidated.
The kinds of proposals in a DOCA can be flexible and will depend on the particular circumstances of the company. A typical proposal might provide for the company to continue trading and pay off all or part of its debts over time.
Whatever the proposal, the DOCA must contain the following information:
The success of a Deed of Company Arrangement depends entirely on the creditors belief that it is in their best interests, and it must be approved by at least 50% of creditors at the second and final meeting. If they vote in favour of the DOCA, the company must sign it within 15 days, after which the deed administration process commences.
Voluntary administration can provide several important benefits to a company in financial trouble.
Voluntary administrations are not always successful, and this can be because they are sometimes recommended when a company is beyond the recovery point.
However, if expert advice is sought in a timely manner and the right voluntary administrator is appointed, the results can be markedly different. For example, 80% of companies who have entered into voluntary administration withMackay Goodwin in the past two years have succeeded with a Deed Of Company Arrangement (DOCA).
To find out more, contact us for a free consultation anywhere in Australia by filling in our online form, or calling Mackay Goodwin on 1300 750 599.