Why Voluntary Administration?

26 May 2017

Voluntary Administration ("VA") is a process which is designed to be a quick and simple way to resolve a company's future.

Where the business of the company is still operating as a going concern at the time of the Voluntary Administrator's appointment, the Voluntary Administrator ("Administrator") will conduct a review of the viability of the business and will decide whether to continue trading the business with a view to achieving a restructure or sale.  The Administration process allows for a proposal for a Deed of Company Arrangement to be put to creditors for their consideration.

A Deed of Company Arrangement is in essence a contract that outlines what benefit the company will provide to its members and creditors in exchange for settlement of all debts/claims against it.

Once a company is in administration, the future of the company is decided by the company's creditors.  Creditors will vote on the company's future at the second meeting of creditors.

How do I appoint an Administrator?

Section 436A of the Corporations Act provides that the company may appoint an Administrator in writing if the Directors resolve that the company is insolvent, or is likely to become insolvent.  Prior to the appointment, the Directors will need to obtain the written consent of a Registered Liquidator to act as Voluntary Administrator of the company.

What happens after an Adminstrator is appointed?

Once the Administrator is appointed, he/she takes control of the company and deals with outstanding creditors. 

A Director will still have obligations to assist the Administrator as follows:

  • Advising the Administrator of the location of the company's property and delivering to the Administrator any such company property in his/her possession;
  • Providing the Administrator with an overview of the business of the company, its ongoing and future projects, and its current financial position;
  • Providing the Administrator with all the company's books and records in his/her possession;
  • Advising the Administrator of the location of any other company assets;
  • Providing the Administrator with a written report about the company's business, property and financial circumstances within 5 days (known as a Report As To Affairs – ASIC Form 507); and
  • Meeting with and/or reporting to the Administrator as and when reasonably required by the administrator.

It is important that a Director does not obstruct the Administrator in carrying out his/her duties.  Any failure to assist the Administrator may be reported to ASIC and may involve serious consequences for the non compliant Director.

The Administrator will act quickly and takes full control of the company to try to work out a way to save either the company and/or the company's business.  He/she has strict time frames to follow which are mandated by the Corporations Act 2001.  The Administrator must send reports to all known creditors, and convene two meetings of creditors.

The first meeting of creditors is to be convened within 8 business days of appointment. The purpose of this meeting is to consider whether to appoint a Committee of Creditors ("Committee") and if so, to determine who are the committee members.  The Administrator will send a brief First Report and Notice of Meeting to all known creditors to convene this meeting.  The Committee may be formed to assist, where requested, the Administrator in undertaking his/her role.

Subsequent to the first meeting, the Administrator will conduct detailed investigations into the affairs of the company to enable him/her to prepare a detailed Second Report to Creditors.  The Administrator is required to form an opinion and recommend to creditors whether it is in the best interests of creditors for:

  • The control of the company to revert to the Directors;
  • The company to execute a Deed of Company Arrangement (if one has been proposed); or
  • The company to be wound up (i.e. placed into Liquidation).

The Second Report will provide a notice of a second meeting of creditors, to be convened generally within 20 business days after the commencement of the Administration.  At this meeting, creditors will vote on the future of the company.

Potential Outcomes

The purpose of the voluntary administration process is, where possible, to aim to save the business and/or the company and to provide creditors and members with a greater return than would be available if the company were simply wound up. 

If the company is trading when an Administrator is appointed, the Administrator will conduct a detailed review of the business to determine whether to continue to trade the business or to cease trading.  The Administrator may decide to continue trading if it is likely to allow the business to be sold as a going concern or to allow a Deed of Company Arrangement to be proposed which will achieve a greater return to creditors and members than winding up the company.

The Directors of the company, or a third party, may submit a proposal for a Deed of Company Arrangement for creditors to consider.  The terms of a Deed Proposal will be varied according to each individual company.

The Administrator will consider the proposed Deed and potential Liquidation scenarios and provide creditors with a recommendation as to which option in his/her opinion is in the best interests of creditors. 

The future of the company is decided by the company's creditors.

Action

If you suspect your company is in financial difficulty, it is important to act immediately and obtain professional advice about the best course of action in your circumstances.

The earlier you act, the greater the likelihood of being able to achieve a successful restructure and save the business and company.  Voluntary administration may be the solution to give your business and/or company the opportunity it needs to turn the business around and allow the greatest possible return to creditors and members.

Contact Rodgers Reidy now for a confidential discussion in relation to your business circumstances.

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