The purpose of a Voluntary Administration is to give time to a company in financial distress to formulate and implement a restructuring plan, or at least, to plan for an orderly realization of the assets of a company.
The appointment of an Administrator is generally made by a resolution passed by the majority of the board of directors, so the administration process can commence quite quickly.
Claims against the company are put on hold whilst the Administrator trades the business (which does not occur in all cases) and investigates the past affairs of the company, including its assets, liabilities, insolvent transactions and potential insolvent trading matters.
The directors / shareholders, or other parties, may propose a Deed of Company Arrangement (“DOCA”) for creditors to consider, which is a proposal generally designed to offer a greater return to creditors compared to what would be available if the company were to be wound up (i.e. placed into liquidation). If the DOCA is accepted, the control of the company usually reverts back to its directors.
A DOCA may be founded upon, for example, an injection of third party funds, the withdrawal of related party claims to enhance the return to external creditors, sale of surplus assets or contributions from future trading.
The Administrator prepares a report to creditors which compares the outcomes of the DOCA proposal and the likely outcomes of a liquidation scenario, and creditors vote on the future of the company at a meeting of creditors.
For more information, see the following information links prepared by the Australian Securities & Investments Commission:
To speak with us further regrading whether a Voluntary Administration may be appropriate in your situation, please contact us on 08 9215 7900 for a cost and obligation free consultation.