Voluntary Administration Video

Hi I’m Steven Kugel. Welcome to the Insolvency Experts.

Today we will discuss the concept of Voluntary Administration.

Often times you will find a company’s director acknowledges there is a financial crisis looming but still he believes there is a business worth saving and therefore he does not want the company to enter into liquidation.

In this set of circumstances, the director can opt for what’s known as a Voluntary Administration.

Voluntary Administration

A Voluntary Administration is a situation where a person like me will come into a company for a period of 35 days in which I would take control of the business, trade it on if possible and put together a major report explaining the financial circumstance of the company and the likely return to its creditors if the company were to be placed into liquidation.

Simultaneously with this, the director of the company will be formulating a proposal about how he intends to deal with the outstanding creditor claims which he would put before the creditors at the major meeting to be held at the end of the 35 day period.

The director’s proposal will need to recognize that if creditors are to positively consider his proposal for how he intends to pay them, that his proposal will need to provide a substantially better return than they would receive in the liquidation scenario.

So, if a Voluntary Administrator calculates the company, after all assets are realized in a liquidation scenario will return 10 cents in the dollar to its unsecured creditors, then the directors proposal to creditors in which he effectively says please don’t liquidate this company – would have to provide for a higher return than if the company were placed into liquidation.

In this regard, let’s imagine the director offers 25 cents in the dollar.

That is certainly a better outcome than 10 cents in the dollar if the company had to be liquidated.

Of course in this type of appointment, creditors rely upon the Administrator’s assessment of the director’s proposal and will usually follow his recommendation in this regard.

Of course, the creditors are not bound to follow the recommendation of the Administrator and they may, for their own reasons wish to liquidate the company — but this is a matter for the majority of creditors to decide.

In any event, the meeting at day 35 is the major meeting in a Voluntary Administration and the resolution of significance that is dealt with on that day is either to;

• Reject the director’s proposal if one had been made and to place the company into liquidation, or;
• To accept the director’s proposal and the company will then enter into a Deed of Company Arrangement.

By way of explanation, a Deed of Company Arrangement is simply the agreement through which the directors promise of a better return is delivered to the creditors.

Naturally, if the director or company fails to meet its obligations under a Deed of Company Arrangement, the company can be placed into Liquidation by the creditors.