What happens during Voluntary Administration?
Voluntary administration is a process designed to help insolvent companies restructure or wind down operations efficiently.
- Voluntary administration is initiated when a company is insolvent or likely to become insolvent.
- An external administrator is appointed to assess the company's financial situation.
- The administrator's goal is to save the company or achieve a better outcome for creditors than immediate liquidation.
- A meeting with creditors is held to decide the company's future.
Understanding Voluntary Administration
Voluntary administration is a legal process initiated by a company's directors when they believe the company is insolvent or likely to become insolvent. This process aims to provide a solution that can potentially save the company or, at the very least, deliver a better outcome for creditors than would be achieved through immediate liquidation. The process is governed by the Australian Corporations Act 2001 and is intended to maximise the company's chances of continuing as a going concern.
Role of the Voluntary Administrator
Once a company enters voluntary administration, an independent external administrator, known as the voluntary administrator, is appointed. The administrator takes control of the company's affairs and conducts a thorough assessment of its financial situation. Their primary responsibilities include investigating the company's business, property, affairs, and financial circumstances. The administrator also prepares a report for creditors, outlining the company's situation and the possible options for its future.
Decision-Making Process
The administrator must convene a meeting with the company's creditors within eight business days of their appointment. This initial meeting is to appoint a committee of creditors, which may assist and advise the administrator. Following this, a second meeting is held, typically within 25 business days, where creditors decide on the company's future. Options include returning control to the directors, accepting a deed of company arrangement (DOCA), or placing the company into liquidation.
Outcomes of Voluntary Administration
The outcome of voluntary administration can vary based on the company's financial state and the decisions made by creditors. If a DOCA is agreed upon, it provides a framework for the company to pay its debts and continue trading. If creditors decide on liquidation, the company's assets are sold to repay debts, and the company is wound up. In some cases, the company may return to the control of its directors if it is deemed viable without a DOCA.
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