Voluntary Administration Process & Timeline
There are a number of reasons why a company can fall into financial hardship. These include receiving a large tax debt, loss of a major customer, or having a poor business structure. Voluntary administration is a tool for companies in distress to use to help directors avoid insolvent trading, and potentially liquidation.
Voluntary Administration is intended to help a business survive. However, sometimes a business simply cannot be turned around. In this case, Voluntary Administration aims to provide a better return to a company’s creditors. More than they would have received if the company went into liquidation.
If your company is struggling financially there are a number of paths you can take to turn things around. The experts at Revive Financial can help you decide if Voluntary Administration is the best way for your company. Speak to our experts today on 1800 861 247.
What You Need to Know about Voluntary Administration in Australia
Voluntary Administration is a formal insolvency appointment that gives owners some breathing space while they resolve their company’s future. During this period, unsecured creditors or creditors who do not have a charge over the company’s assets, cannot enforce any of their claims against the company.
Voluntary Administration involves a Registered Administrator taking full control of the company. They will attempt to find a way to save either the company or its business.
If the company can’t be saved, the Administrator has a new goal. That is to administer the company’s affairs in a way that gives creditors a better return than they would have received if the company went directly into liquidation.
Voluntary Administration lasts 20 business days or 25 business days during the Christmas and Easter period.
At the end of Voluntary Administration, creditors must vote for one of these options:
- Approve a Deed Of Company Agreement for the company to pay off its debts
- End the Voluntary Administration and return the company to the Directors’ control
- Wind up the company and appoint a liquidator. This is known as Creditors Voluntary Liquidation.
Worried about insolvency or declaring bankruptcy? For more information on Voluntary Administration, get in touch with us to arrange a confidential consultation.
What is Voluntary Administration?
Voluntary Administration is the process where a company director gives control of their insolvent company to an Administrator. This can be to provide breathing space from creditors, to assess the options available, and formulate the best outcome for the business and its creditors.
In order for the company to survive, the directors (or anyone who wishes) must propose a deed of company arrangement (DOCA) for creditors to consider. A DOCA proposal provides creditors with the best return the company can reasonably afford, generally less than the full amount of the debts. The Administrator will report on the expected outcome (ie. cents/$ return) for creditors under the DOCA proposal and liquidation and provide an opinion as to which option is in creditors’ best interests.
The Role of the Voluntary Administrator
If the directors think their company is insolvent, they must take action. It is illegal to trade insolvent so they must enter a period of administration.
An external representative of the company is then brought in to manage company affairs. This person is a registered Administrator.
The following representatives can appoint Administrators:
- Secured creditors
- Provisional liquidators
- Company directors
The responsibilities of the administrator include:
- Reporting offences to ASIC,
- Taking control of the companies financial assets
- Inquiring into the affairs of the company
- Organising creditor meetings to determine whether or not the company should be liquidated
- Communicating with directors to ensure a Deed of Company Arrangement is created
How to Enter Voluntary Administration
Why Enter Into Voluntary Administration?
The main objective of a Voluntary Administration is to give a company the time it needs to restructure its affairs without the pressure of creditors seeking repayment or entering into a Deed of Company Agreement (DOCA).
The Voluntary Administration process best suits companies looking to continue trading while undertaking a formal restructure. This would include a compromise with its creditors before declaring bankruptcy.
This will give the company the best chance of survival. It may also save its directors from having to wind up the business and possibly declare bankruptcy.
Benefits of Voluntary Administration
There are many benefits to Voluntary Administration. The biggest would be that it gives you time to collect your thoughts and create a plan to get your company back on track. Some other benefits include:
- Quick resolution of a company’s future.
- It’s the best chance for a company to restructure its affairs and continue trading in some form. It’s mostly used when a company is suffering short-term cash flow restrictions or one-off financial problems.
- It administers the company’s affairs in order to give creditors a better return than they would get if the company were in liquidation.
The Administrator must submit their report to the creditors 5 weeks from the date of their appointment. For more complicated cases, this timeframe can be extended.
Voluntary Administration provides much-needed breathing room for companies in financial difficulty. During the Voluntary Administration period, your creditors must stop their collection activities. Your administrator will also look at your company structure to see if it can be saved. The Administrator might find the company is heading towards insolvency.
If your company is only in short-term financial trouble, Voluntary Administration is the best solution for you.
To enter Voluntary Administration, the Directors must pass a resolution in a Board meeting. They must then present the vote in writing and appoint an administrator.
Each Administration is different so there is no one answer. The cost of the Voluntary Administration will depend on:
- the size of the company
- the complexity of the financial hardship
- the number and type of creditors
- the work that needs to be performed.