When a company is experiencing cash flow difficulties, directors will often loan money to the company to enable it
When a person is made bankrupt by way of a Sequestration Order, Section 54(1) of the Bankruptcy Act 1966
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The purpose of a Voluntary Administration is to provide some breathing space to a viable company in financial distress, so that a restructuring plan can be formulated without the pressure and distractions associated with unmanageable debt levels.
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.
To speak with us further regarding whether a Voluntary Administration may be appropriate in your situation, please contact us on 08 9215 7900 for a cost and obligation free consultation.