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Voluntary Administration

Saving a business can be a difficult task, but it’s made easier with the help of experienced and knowledgeable leaders in business like those at Business Rescue Solutions. When your business is at risk, you can come to Business Rescue Solutions to talk through your options.

Some of the things that might happen to put your company at risk include events like the COVID-19 pandemic or other random events like natural disasters or unexpected changes in the global stock market. These can have a huge impact on the success of your business and may cause you to rack up debts that you can’t pay back or put you at risk of going out of business. This is called insolvency.

When a company is at risk of becoming insolvent, or is already insolvent, the directors may choose to go into voluntary administration. Voluntary administration is a process whereby a voluntary administrator is appointed to take over the business from the shareholders and directors, and assesses the feasibility of continuing the business.

Before going into voluntary administration the directors must get written consent from a licensed liquidator to ensure that they have someone who is appropriately trained and professionally able to manage their debt situation for them.

The voluntary administrator has several steps that they might take, including deciding to shut down the business if the debts have begun to rack up too high, or if they can’t see the situation that put your business into debt changing soon. They may also choose to come up with a restructuring plan to keep your business operational.

Immediately after appointment, the control of the company passes from the directors to the administrator. This allows the administrator to address debts and implement any strategies to keep the business running.

The voluntary administrator will then consult with the creditors (the people who have lent you money and to whom you owe debts), and they will ultimately be the ones who determine the feasibility of keeping your business running and paying off the debts, or whether it should be closed and undergo liquidation to repay the creditors as much as possible.

The first consultation must occur within eight business days and is when the decision is made about whether to form a committee of creditors. The administrator will also send a first report and meeting notice to all creditors informing them of the voluntary administration.

 

Next, the administrator begins an intensive investigation where they try to come up with a recommendation for the best way to settle the debts of the company. This can be done in one of two ways.

The ideal outcome for all involved parties is that the voluntary administrator and the creditors come up with a repayment plan for the creditors called a deed of company arrangement (DOCA). This is a formally documented plan where the company agrees to pay back the creditors a certain amount of cents on the dollar to pay back the debts owed by the company.

The voluntary administrator must come up with a better plan for the DOCA than the creditors would get than if the company were to be placed into liquidation, and also requires that a majority of the creditors agree to the proposal. If the DOCA plan is accepted, then the payment of the debts in the amount agreed to will be considered the full settlement of those debts. After the debts are paid off, the company will be allowed to continue to exist and continue trading.

The other way that debt can be settled is through liquidation. In this case, the business will cease trading and the non-liquid assets such as company buildings, shares, and any revenue will be sold or reclaimed, and cash will be distributed equitably to the creditors.

A second report will be sent to the creditors after this investigation is complete, in which the voluntary administrator will tell the creditors whether the company should be allowed to continue trading with a DOCA or whether it should be placed into liquidation.

A second meeting of the creditors will usually take place within twenty business days so the creditors can vote on the future of the company. Trading is allowed to continue throughout this process, particularly if it is in support of a sale or a more profitable DOCA.

The company’s directors are also welcome to propose a DOCA, especially if they feel there are unique circumstances for the company that may be overlooked. The administrator will evaluate this proposal at the same time as the proposal for liquidation and recommend it to creditors, but the eventual decision on the future of the company is ultimately left up to the creditors.

It is always a difficult and emotional time when something unexpected gets in the way of running your business. If you feel like you have encountered such difficulty and need the help of an experienced voluntary administrator to save your business, get in touch with Business Rescue Solutions to talk about your options today.

For more information on the Voluntary Administration process, use the contact form below or call us on 09 834 2631