Voluntary Administration

SV Partners approach to Voluntary Administrations

Making the decision to enter into voluntary administration can be one of the most difficult decisions a business can make.  Voluntary administration not only affects the owners and directors of a business, it can have a long lasting impact upon its employees, creditors and shareholders.

SV Partners has many years’ experience in Voluntary Administrations matters across a range of industries and businesses.  Our team of experts can provide your organisation with the necessary breathing space to liaise with creditors and prepare a proposal to give the best return to all stakeholders involved.

What is Voluntary Administration?

Voluntary administration is an insolvency procedure where the directors of a financially troubled company with a security interest over most of the company’s assets appoint an external administrator.

The voluntary administration process ensures that the business, property and affairs of the company are administered in a way that:

Maximises the chances of a business to continue to exist, or:

Results in a better return for the company’s creditors and members, than from an immediate winding up of the company (section 435A).

The administration process takes place over an interim period, usually lasting between 25 and 30 business days.

What causes Voluntary Administration?

A voluntary administration occurs after the company’s directors pass a resolution that the company is insolvent, or is likely to become insolvent at some future time, and a voluntary administrator should be appointed.

A voluntary administrator may also be appointed by a secured party, who is entitled to enforce a security interest over the company’s property.

If a company has a winding up application against it in the Court, a voluntary administrator can be appointed whilst the application remains on foot.

Why choose a Voluntary Administration?

A voluntary administration provides a flexible procedure, enabling a company time to compromise an arrangement with its creditors, which may save the company, the business and jobs while maximising the return to creditors. It can:

Provide a company with breathing space to deal with creditors in an orderly manner and prepare proposal to give the best return to stakeholders

Allows an independent party to review the company’s affairs and deal with the pressures of creditors

Reduce the possibility of secured creditor proceedings against the assets of the company

It may allow the company to stay out of liquidation

If the voluntary administration attempt fails, the legislation facilitates the winding-up of the company.

What is the impact of a Voluntary Administration on key stakeholders?

Voluntary administration can have a significant impact upon various stakeholders involved in the running of the business.

Secured party (formerly known as secured creditors)

Secured parties hold a security interest over assets of the company and have 13 business days from the day of the voluntary administrator’s appointment to exercise their security.

If they do not elect to exercise their security within this time then they will be bound by a moratorium for the duration of the voluntary administration period.  The secured party may exercise their security outside of the 13 business day period with the consent of the voluntary administrator or with the leave of the Court.

Employees

The appointment of a voluntary administrator does not automatically terminate the employment of the company’s employees.  Employee entitlements such as wages, superannuation and annual leave that accrued prior to the voluntary administrator’s appointment are not usually paid during the administration period.  How and when these entitlements are paid depends on the outcome of the creditors meeting held at the end of the administration.

Unsecured Creditors

The appointment of a voluntary administrator suspends all unsecured creditors’ rights to pursue a company further for unpaid debts except for with the consent of the voluntary administrator or with leave of the Court. This also prohibits creditors who hold personal guarantees from enforcing their guarantees during the administration except with the Court’s leave.

Directors

The powers of a director are suspended on the appointment of a voluntary administrator and only the voluntary administrator is able to bind the company in any transaction. A director is required to assist the voluntary administrator in undertaking the administration and has an obligation to comply with any requests made by the liquidators.

Directors also often provide personal guarantees to creditors for debts incurred by the company. However, these personal guarantees can only be enforced once the voluntary administration has ended or with leave of the Court.

Role & Powers of the Voluntary Administrator

Once the voluntary administration has commenced, the voluntary administrator takes control of the company’s assets and affairs and is the only one with the power to bind the company. The voluntary administrator will:

  • Trade the company’s business if appropriate
  • Identify, secure and realise the company’s assets
  • Conduct preliminary investigations into insolvent trading, preferential payments and other voidable transactions
  • Report to creditors on the company’s business, property, affairs and financial circumstances and provide their opinion on the three options available to creditors.
When does the Voluntary Administration end?

An administration will end when:

  • A Deed of Company Arrangement is executed
  • The creditors resolve that the administration should end
  • The creditors resolve that the company be wound up
  • The Court orders that the administration end
  • The Court appoints a liquidator to the company
  • The time period for calling a meeting of creditors as prescribed under the Corporations Act has not been met
Reports & Meetings

During the course of the voluntary administration, the administrator is required to issue the following reports and hold the following meetings:

Purpose Report Timing Meeting Timing
First Report & Meeting Within 3 business days after appointment 5 business days after notice
Second Report & Meeting Within 20 or 25 business days after the day of appointment* 5 business days after notice

 

* 25 business days applies if the day after the administrator is appointed is in December or is less than 25 business days before Good Friday. At all other times 20 business days applies.

First Report & Meeting

The first report to creditors is to simply notify creditors of the administrator’s appointment and to call a meeting at which the following will be asked of creditors:

  • Whether they want to form a committee of creditors and if so who those committee members will be; and
  • Whether they want the existing voluntary administrator to be replaced by another administrator of their choice.
Second Report & Meeting

The second report to creditors details the company’s assets and liabilities, the results of the administrator’s investigations into the company’s affairs and also the administrator’s opinion on the three options available to creditors.  These options are:

  • End the voluntary administration and return the company to the directors control; or
  • Approve a deed of company arrangement through which the company will pay all or part of its debts and then be free of those debts; or
  • Wind up the company and appoint a liquidator.

The second report also calls the second meeting of creditors at which the voluntary administration will end.  In complex administrations the length of the administration can be extended to provide the administrators with extra time to report to creditors. 

What is a Deed of Company Arrangement?
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A deed of company arrangement (DOCA) is one of the options at the second meeting of creditors, and is an agreement which binds all unsecured creditors, even if they voted against the DOCA. The DOCA does not prevent a creditor who holds a personal guarantee from the company’s director or another person taking action under the personal guarantee to be repaid their debt.

A DOCA releases the company from its debts incurred prior to the appointment of the voluntary administrator, whilst providing a greater return to creditors than if the company had been wound up.  Details of the terms of the proposed DOCA along with the administrator’s recommendation will be provided to creditors in the administrator’s second report.

Whilst the company is under a DOCA, the voluntary administrator will become the deed administrator and will ensure that the terms of the DOCA are complied with and its purpose achieved. If the DOCA is not complied with or its purpose it no longer achievable, then the deed administrator can terminate the DOCA in accordance with its provisions.  This will usually result in the company being placed into liquidation upon termination of the DOCA.

Contact us

If you would like more information about how SV Partners can assist your business through the voluntary administration process, please contact one of our expert advisors.

 

Contact our Corporate Insolvency Experts

If you have any questions relating to our Corporate Insolvency services, please contact one of our expert advisors.

 

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Handbooks

Download a copy of the SV Partners Corporate Insolvency Handbook.

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