What Voluntary Administration Means

What Voluntary Administration Means

Managing a company’s debts can be a challenge at the best of times. Accessing expert advice can be a great asset, and Voluntary Administration services are a good way to navigate issues and get a company back on track.

Administrators are independent advisers that are uniquely qualified to support a business in recovering from financial difficulties. With vast experience in Liquidation proceedings, an Administrator can assess your business’ position and develop a plan that benefits all stakeholders, including employees, creditors, directors and shareholders.

Voluntary Administration is a large and complex topic, so we’re going to cover the basics to help you understand more about what the process involves for struggling businesses. Read below to see what Voluntary Administration means.

What is Voluntary Administration?

Companies often take on debt in the ordinary course of business. New debt can allow a business to expand, hire new talent, invest in assets and provide a broader range of products and services.

But those debts need to be managed and repaid, which can be difficult if a company isn’t operating according to its projections. In the worst case, a business may become unable to meet its debt obligations, which is a state known as insolvency.

While a business is insolvent, its creditors still have a right to recover the money they are owed, which can lead to Liquidation. Liquidation results in a business ceasing to exist, and it may not provide the best outcome for creditors, employees, directors, shareholders and other stakeholders.

If the directors of the company can recognise the financial difficulty, they can instead opt for Voluntary Administration. Voluntary Administration allows a business to access professional advice, assess its financial position and develop a plan for repaying creditors. This improves outcomes for all parties involved and can help save the business from Liquidation.

What Happens During Voluntary Administration?

The Administration process is commenced by majority decision of the company’s directors. The directors meet and can vote to appoint an Administrator. If the motion is passed, the Administrator immediately takes control of the company and manages its daily operation, assets, debts and other activities.

Once the Administrator is in control, they will perform a full analysis of the company’s situation. This includes investigating financial affairs, assessing assets, looking for signs of director or managerial misconduct, and figuring out whether the company will be able to repay its debts to creditors.

This is a relatively quick process that lasts between 25 to 30 business days. During this period, the Administrator will hold meetings with creditors and keep them updated on any findings and recommendations. Once investigations are complete, the Administrator will hold a final meeting of the creditors to present their findings and make a recommendation on how to proceed.

The Outcomes of Voluntary Administration

The Administration period ends once the Administrator has investigated the company’s financial situation and determined the best course of action. This is done with the support of the company’s directors, and is overseen by the creditors.

Once these investigations are complete, the Administrator will make one of three recommendations to creditors. The Administrator may recommend that:

  • Control of the company be returned to the directors and the business be allowed to trade on as normal
  • The company develop and execute a Deed of Company Arrangement that allows it to repay some or all of its debts (potentially while continuing to trade)
  • The company immediately move to Liquidation

The role of the Administrator is to present their findings in an unbiased manner. The creditors ultimately have the responsibility to decide which course of action is best. Since Liquidation typically provides low returns to creditors, a Deed of Company Arrangement is the preferred outcome wherever possible.

Negotiation a Deed of Company Arrangement

A Deed of Company Arrangement (DOCA) is a formal agreement between a company and its creditors. The arrangement details terms under which the company will repay some, or all, of its debts. In many cases this includes continuing to trade while making more manageable payments over an extended period.

A DOCA will be developed by the Administrator when appropriate. If the company has the capacity to repay its debts over a greater period of time, this provides better returns for the creditors, and it can help the company avoid Liquidation.

If the DOCA is approved, it becomes binding for all creditors, even if they didn’t vote to approve the agreement. A DOCA must be approved by the majority of creditors (in number and in value).

If the company fails to meet the terms of the DOCA, it will immediately proceed to Liquidation. The terms of a DOCA can be varied or renegotiated during the DOCA period.


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