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Voluntary Administration

What You Need to Know about Voluntary Administration in Australia

Voluntary Administration (VA) is a formal insolvency appointment that gives owners some breathing space while their company’s future is being resolved.

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 qualified person (the voluntary administrator) taking full control of the company in order to determine a way of saving either the company or its business.

If this isn’t possible, the new goal is to administer the company’s affairs in a way that gives the creditors a better return than they would have received had the company instead been placed directly into liquidation.

The Voluntary Administration period lasts 20 business days (25 business days during the Christmas and Easter period).

At the end of theVoluntary Administration period, creditors vote for one of these options:

  • Approve a DOCA for the company to pay all or part of its debts and then be free of those debts
  • End the VA and return the company to the Directors’ control
  • Wind up the company and appoint a liquidator (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 free and confidential consultation.

The Role of the Voluntary Administrator

When the directors of a company come to the conclusion that they are insolvent, or will likely become insolvent in the near future, they will be considered to have gone into administration.

What happens in this case, is that an external representative of the company – a registered Administrator – will be put in place to manage it.

Administrators can be appointed by the following representatives:

  • Secured creditors
  • Liquidators
  • Provisional liquidators; or,
  • Company directors

The responsibilities of the administrator include:

  • Reporting offences to ASIC,
  • Required to take control of the financial assets of the company
  • Inquiries into the affairs of the company
  • Organisation of creditor meetings to determine whether or not the company should be liquidated; and,
  • Communication with directors to ensure a Deed of Company Arrangement is created

How to Enter Voluntary Administration

Step 1: Talk to a ReVIVE Financial Specialist

Voluntary Administration is often used by businesses who are experiencing a short-term cash flow issue or a sudden, temporary drop in profits.

Speaking to a Revive Financial specialist in a free consultation will help you understand your financial position and determine the best debt recovery action moving forward.

Step 2: Appoint an administrator in writing and by a Board Resolution.

A Voluntary Administrator must be appointed to take control of the business. The Voluntary Administrator investigates the status of the company and provides a report to the creditors. This report will also include their recommendations on what they believe is in the creditors’ best interests.

Step 3: A Creditors Meeting is Called

A creditors meeting is held within five weeks after the Voluntary Administration commences to decide on the company’s future. Creditors can decide to either:

  1. Return the company to the control of the directors.
  2. Have the company enter into a Deed of Company Arrangement (DOCA).
  3. Place the company into liquidation.

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 is best suited to companies which would like 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 and perhaps 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 a period of space 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.
  • 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.
  • Administers company’s affairs in order to give creditors a better return than they would get if the company were placed into liquidation.

FAQs

The Administrator must submit his 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 experiencing financial difficulty. During the Voluntary Administration period, your creditors must cease all collection activities. Your administrator will also be looking at your company structure to see if you can pull through your financial hardship or if your company is heading toward trading insolvent.

If your company is only experiencing short-term financial trouble, Voluntary Administration is the best solution for you.

To enter Voluntary Administration, the company Directors must pass a resolution to do so in a Board meeting and present the vote in writing. An administrator must then be appointed.

Each Administration is different so there is no definitive 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 and the work that needs to be performed.

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