Voluntary administration

The Voluntary Administration process can provide an opportunity to restructure a company under financial distress via an independent transparent process

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 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 Voluntary Administration process allows for a proposal for a Deed of Company Arrangement to be put to creditors for their consideration, which is in essence a contract that outlines what benefit the company will provide to its creditors in exchange for settlement of all debts/claims against it.

Once a company is in Voluntary 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 a Voluntary Administrator?

Section 436A of the Corporations Act provides that the company may appoint a Voluntary 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 a Voluntary Administrator is appointed?

Once the Administrator is appointed, they take control of the company and deal with outstanding creditors. They implement a strategy to maximise the chances of the business continuing of if that is not possible, maximise the returns to the company's creditors. They have 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.

Subsequent to the first meeting, the Voluntary 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

If the company is trading when a Voluntary 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's circumstances.

The Voluntary 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 then decided by the company's creditors.

If you suspect your company is in financial difficulty, it is important to get expert advice immediately about the best course of action. The earlier you act, the greater the chances of achieving a successful restructure and saving the business. Contact us today to discuss whether voluntary administration is the best strategy for your business.

 

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