Voluntary Administration May Save Your Business
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Voluntary Administration – Save Your Business
Voluntary Administration is a legal alternative to company liquidation. It is appropriate for directors who believe their company is viable and worth saving.
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What is Voluntary Administration?
Voluntary Administration is a way in which an insolvent (or soon to become insolvent) company can restructure and deal with its debt by offering a formal compromise to its creditors while still allowing the business to trade and employ.
During a Voluntary Administration (usually 28 – 35 days), the voluntary administrator will take control of the company and its trading operations. Directors will generally provide assistance during this process.
While trading continues, directors will draft a proposal to be put before the creditors. Usually that proposal will provide for a better return to creditors than would be available if the company was immediately placed into liquidation.
Once the proposal is finalised, it is sent to all creditors who then meet and vote on it.
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What voting options are available to creditors?
Once the proposal is sent to creditors, a meeting will be held and a vote taken as to whether:
- To accept the director’s proposal for the compromise or settlement of the debts; or
- To reject the proposal and place the Company into liquidation;
Creditors may also vote to return control of the company to the directors but this rarely occurs as the company is insolvent.
If creditors agree to the proposal, the company will go from Voluntary Administration to a Deed of Company Arrangement – this is where the company will attempt to fulfil the proposal. If creditors reject the proposal, the company will go into liquidation.
What is the role of the Voluntary Administrator?
The administrator must undertake a thorough investigation into the affairs of the company and to report to creditors in detail as to the financial position of the company.
The administrator will also report upon the directors proposal and whether he believes the proposal is the best option for the creditors.
Usually the administrator will recommend a directors’ proposal to creditors if it provides for a greater return than they would otherwise receive in a liquidation.
The other role of the Voluntary Administrator is to report any breaches of the Corporations Act to the ASIC.
If you are considering Voluntary Administration, call us to understand all your options and how your business may be saved.
What Types of Business does a Voluntary Administration suit?
A Voluntary Administration can be used for any type of business but it is best suited to companies with a substantial business, valuable assets or both.
Voluntary Administration may not be suitable to smaller companies where assets values are limited as the costs of the process can be prohibitive.
For smaller companies with lower value assets, there are other legal options available and you may contact us anytime to find out what they are.
How is a Voluntary Administration begun?
The process of appointing a Voluntary Administrator is usually commenced by a majority of directors making such an appointment.
The appointment can also be made by a secured creditor or a liquidator. When the administrator is appointed he will immediately take control of the company and its operations.
Following that, he will start his investigations and report to the creditors and invite them to the first meeting held within the first eight (8) business days.
After the first meeting, the administrator will then conduct a very detailed investigation into the problems of the company and the financial position.
He will also report to creditors on any proposal made by the directors and whether, in his opinion, the proposal should be accepted or whether the company should be liquidated.
The major report by the administrator calls a second meeting of creditors held at about day 30 – 35 of the administration period.
What happens at the two meetings of creditors?
The first meeting of creditors that is held within 8 days of appointment is fairly basic and procedural in nature.
In this meeting, creditors decide:
- whether or not they wish to replace the current administrator and with whom
- whether the creditors wish to form a committee
The second meeting of creditors is the most important. Creditors have now received the detailed report of the administrator and have had the opportunity of assessing the financial position of the company, the proposal of the directors and the likely return under both scenarios.
Creditors will then be asked to vote on the future of the company and specifically whether:
- To accept the director’s proposal and allow the company to enter into a Deed of Company Arrangement; or
- To vote for the liquidation of the company.
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Answers – will be given to every question. There is no time limit on these consultations.
Options – will be canvassed and explained so you can make an informed decision that is best for you and your family.
Solutions – including both informal and formal solutions. These may include Company liquidation or Administration.