Appointing an Administrator improves your business’s chance of survival
If your business is failing and liquidation seems to be the only option, going into Voluntary Administration (VA) could help it survive the financial difficulties it is experiencing. Voluntary Administration is a formal process where an external administrator takes control of the company whilst its financials are reviewed.
Businesses that have experienced unfortunate events such as a heavy one-off loss or a bad prolonged trading period may decide to proceed with a Voluntary Administration. A VA gives a business temporary reprieve from creditors, and it may give the company enough time to cut debts, reduce costs and allow it to rebuild its profits.
It is important to note that Liquidation and Voluntary Administration are not the same thing. Where Liquidation is the process of bringing a business to a definite end by distributing its assets to claimants, the aim of Voluntary Administration is to return the company back to financial health by allowing time for it to recover. However, if this is unable to be achieved, then a VA ensures creditors get the best possible return.
How does Voluntary Administration work?
Voluntary Administration is most commonly initiated by the company’s directors or by a secured creditor. If a business is experiencing financial hardship, Voluntary Administration effectively presses the ‘pause’ button on proceedings and unsecured creditors are temporarily unable to enforce their claims against your company (unless they have been granted special permission from a court or the administrator).
Landlords and owners are also temporarily prevented from recovering their property and, generally speaking, even secured creditors like banks or other asset-based lenders may be unable to enforce ownership over the company’s property.
This pause can give companies enough breathing space to identify a route to recovery, reduce costs, sell more products, and produce a profit to pay its creditors.
The appointed Administrator will take control of the company and will oversee any restructuring process. They will also meet with creditors to explain the situation, help directors prepare a Deed of Company Arrangement (DOCA) where applicable, and investigate the affairs of the company. The Administrator will also work with the company’s directors and will assess whether or not a successful VA is possible.
There are 3 outcomes to a VA, as follows:
The company goes back under the director’s control if the company is viable and the VA is deemed unnecessary
A Deed of Company Arrangement (DOCA) is designed to state the company’s intentions moving forward
The company is put into Liquidation
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What happens to my business when I appoint an Administrator?
As with any legal process, a Voluntary Administration must adhere to strict procedures. When it comes to the meeting regarding the company’s future and the resolution of the administration process, this (generally speaking) occurs within 30 days of the appointment of the Administrator.
While a company is in Voluntary Administration, directors are unable to use their powers and they must help the administrator where possible. The Administrator has full power and control of the company including its directors. This means that the Administrator may choose to sell any company assets or close down the business prior to the meeting regarding the business’s future.
Now that an Administrator has been appointed, a director may be asked to provide company records and books, provide information on the company’s property or business and financial affairs, as well as any other information the Administrator requires.
When a Voluntary Administrator is appointed they will attempt to work out the best solution to the company’s problems with the creditors’ best interests in mind.
There are three options available that the Administrator will assess. These are:
Ending the voluntary administration and returning the company back to the directors’ control
Approving a Deed of Company Arrangement (DOCA) through which the company will pay part of, or all of, its debts
Or they may decide to cease the company which will result in the appointment of a Liquidator.
Click here for our comprehensive guide to what happens when you appoint a Voluntary Administrator.
A VA gives you ‘breathing space’ for a number of reasons
We’re here to guide you through it
Unsecured creditors cannot enforce their claims against the company without the administrator or court’s permission
Property cannot be recovered by owners or landlords
Secured creditors cannot enforce their charge over company property (except in certain circumstances)
The company cannot be put into liquidation
Creditors holding a personal guarantee cannot enforce it without court approval
Help for a Distraught Director and Accountant
Australian Debt Solvers were extremely competent and spent a great deal of time answering our questions. Everything was set out clearly and in a helpful manner with easy to understand instructions. Advice was given with the greatest consideration. I would strongly recommend them to anyone who needs help with company liquidation.
They answered every question we asked within a very short space of time. Nothing was too much trouble and they were very understanding – knowing how hard it is for a business to come to this decision.
I have told other Accountants about the great service they provide.
Keeping a profitable business, after the Court had appointed a Liquidator
We spoke to ADS after our company had already been wound up by the courts. We wanted the assets from the liquidated business, but didn’t know how to get them. We called Debt Solvers and they took care of everything….they got an “Authority to Act” from us, spoke to Deloittes who were the Liquidator, negotiated the sale of the assets, set up a new company for us…….and we are now going from strength to strength. Money was well spent with ADS!
Gary & Jo, UFIF Engineering
Turning around a company that owed too much to the Tax Office
Our company is a Medical recruitment agency with mostly Government based clients. We had a good sales forecast……but were heavily weighed down with debt, mostly from the ATO. I met with Debt Solvers….when I thought I was going to lose the business. They talked me through Voluntary Administration where you offer creditors a reduced amount, and you pay the reduced debt over 12 months – which is called a Deed of Company Arrangement. Our creditors agreed on the offer, and we have gone from strength to strength. ADS even organised a Debtor Finance company to assist with our cashflow at a reasonable rate. Considering I thought we were going to lose the business – an great result!
Shaun, Beat Medical
We’ve helped thousands of Australian Business Directors with the Lowest Price Liquidations in Australia!
Australian Debt Solvers takes up to 10 enquiries per day from Australian Companies that have debt issues. A lot of these have under $100,000 of unsecured debt, with no company assets, and simply need to close the company down. Debt Solvers does this for a fair price, efficiently and with empathy for the Director. It’s a service that has proven extremely useful for Directors, right across Australia.
A low cost Voluntary Administration service to get companies back on their feet
Australian Debt Solvers hears from a lot of Directors, where there company could be profitable and trading well, but they are being tied down by too much debt – of which the majority is usually the ATO. We have worked through with hundreds of companies – a Voluntary Administration – where we negotiate and reduced amount of debt to creditors over usually a 12-24 month period. This is called a Deed of Company Arrangement….and is an extremely effective method of assisting companies to “get back on their feet”. Debt Solvers charges a fair price through this process…….and it’s great to see a business go from strength to strength after this service.
Blows competition out of the water
Firstly Dave showed compassion when the other liquidator was very impersonal. Secondly Australian Debt Solvers are helpful – there was stuff Dave didn’t have to tell me as he is just dealing with our company not our personal affairs. However he answered all my questions which makes it easier and gives me a lot more confidence that we are not breaching rules as we wind down. Thirdly, the fee is so much cheaper than a traditional insolvency practice. So far I am very impressed with Australian Debt Solvers. I will post another review once we have completed the process.
Voluntary Administration FAQs
What is Voluntary Administration?
Voluntary Administration is an insolvency process where a company that is experiencing financial hardship is placed in the hands of an external administrator.
The Voluntary Administration process is most commonly initiated by the company in question’s directors or by a secured creditor (like a bank).
Voluntary Administration, also referred to as ‘Company Administration’, is designed to give businesses that are insolvent (or are looking as though they are heading for insolvency) a better chance of surviving, compared to Company Liquidation. The sooner an Administrator is appointed, the better the business’s chances.
The Voluntary Administration process can also assist directors in avoiding insolvent trading which can carry very serious consequences. Directors that fail to prevent insolvent trading can be heavily penalised with significant fines or even jail sentences. Directors can also face personal action from creditors in order for them to recover debts. Voluntary Administration provides directors with an opportunity to pause trading while they decide the company’s future.
Click here to read our Comprehensive Guide to Voluntary Administration.
What is the difference between Administration and Voluntary Administration?
It is important to note that Voluntary Administration (often referred to as Company Administration) that is commenced by directors or secured creditors is very different to Administration entered into by a Liquidator, which is more commonly known as Liquidation.
In Liquidation, winding up the business is already in motion. Liquidation’s sole purpose is to end the company, selling assets, and paying back creditors. A company going through Liquidation has no chance of continuing to trade, and once the process has begun the company’s directors cannot seek advice from Administrators or get input from the creditors.
This is in contrast to Voluntary Administration. The VA process is designed to allow enough time to explore possible options to save the company by giving it a temporary reprieve from creditors. During voluntary administration, the appointed administrator has control of the company and directors are protected from the risk of insolvent trading.
The Administrator may still decide to liquidate the company once a thorough assessment is complete. However, the Administrator may recommend to creditors to vote for a Deed of Company Arrangement (DOCA) or a return to trading with the company transferred back into the hands of the directors — as was the case with this client.
Whether a company moves for voluntary administration or liquidation, this has very different implications for creditors. While in VA, implications for creditors will depend on the DOCA and whether it returns to trading or if it enters Liquidation.
If a company enters into Liquidation then secured creditors with a high priority are often paid first before any remaining funds are distributed to other lower priority creditors, such as unsecured creditors.
Can you buy a company in Voluntary Administration?
Yes. It is possible to purchase a company that is in Voluntary Administration, and it is a more common way of companies expanding than many people think. However, you should proceed with extreme caution and understand that it is unlikely that the business will make any money for some time due to its debts. You should also be prepared for the worst case scenario and understand that the business may fail.
It is not possible to buy a business in Liquidation, as the business no longer exists, but it is possible to purchase its assets by contacting the Liquidator. You can find liquidators by doing a search online and finding sites that list businesses in Liquidation.
ASIC and Company Administration
When a company enters into Administration, this information will become public and will be listed on the Australian Securities & Investments Commission (ASIC) website. This will mean your current suppliers and customers will know about it. If the company has a high-profile then it could get media coverage and be potentially damaging in terms of reputation.
If you return to trading after going through insolvency proceedings then it may become extremely difficult to get financing, and suppliers will likely require cash up front.
If, through the advice of the administrator, ASIC deems that directors have breached the Corporation Act, ASIC could prosecute these directors, compel directors to cooperate with a liquidator, and/or ban or disqualify directors. Some directors will end up with a mark on their credit report.
Click here to read our Comprehensive Guide to Voluntary Administration.
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