Introduction
Whilst each circumstance is different and set of challenges unique, one of the most common misconceptions about Voluntary Administration is that it is the end of the road for struggling businesses. This misconception compels many business owners to delay the decision to reach out for help from an insolvency practitioner or restructuring specialist. In many instances, Voluntary Administration is a chance to hit the pause button, take stock and explore viable pathways to recovery.
In today’s unpredictable business environment, it is important for business owners to understand that Voluntary Administration can provide a critical opportunity to restructure, renegotiate and potentially revive a business before reaching the point of no return – but acting swiftly can make all the difference.
In part two of this series, we discuss the Voluntary Administration process, steps and possible outcomes to help business owners feel informed and prepared should they decide to take this path.
Key steps in the Voluntary Administration process
When a company enters Voluntary Administration, several steps are involved:
Step 1: Appointment of the Administrator/s
The Voluntary Administration process begins when the company’s directors resolve that the company is insolvent or is likely to become insolvent in the future. The directors then appoint an external Administrator to take control of the company’s affairs.
Once the Administrator is appointed, their primary role is to investigate the company’s financial situation and provide recommendations to creditors about its future.
Step 2: First meeting of creditors
Within eight business days of the Administrator’s appointment, a first meeting of creditors must be held.
At this meeting, creditors have the opportunity to appoint a “Committee of Inspection” to assist and advise the Administrators and oversee the administration process.
Step 3: Investigation and report to creditors
The Administrators investigate the company’s financial situation and prepare a report for creditors. This report includes:
- • The company’s assets and liabilities
- • The reasons for the company’s financial difficulties
- • The likelihood of the company continuing to trade
- • Any possible courses of action, such as a Deed of Company Arrangement (DOCA) or
Step 4: Second meeting of creditors
Within 20 to 30 business days of the Administrators’ appointment, a second meeting of creditors is held. At this meeting, creditors vote on the future of the company based on the administrator’s report. The options available to creditors include:
- Returning the company to the directors’ control
- Executing a Deed of Company Arrangement (DOCA)
- Placing the company into liquidation.
Deed of Company Arrangement (DOCA)
A Deed of Company Arrangement (DOCA) is a binding agreement between a company and its creditors that sets out how the company’s affairs will be managed moving forward. A DOCA can involve:
- A compromise on the debts owed to creditors
- A plan for the company to continue trading
- A combination of both.
If creditors approve a DOCA, the company can continue to trade under the terms of the agreement. If the DOCA is not approved or the company fails to meet its obligations under the agreement, the company may be placed into liquidation.
The path to a Creditors' Voluntary Liquidation (CVL)
In some cases, Voluntary Administration may lead to Creditors’ Voluntary Liquidation (CVL). This can occur if:
- The administrator’s report recommends liquidation as the best course of action for the company
- Creditors vote to place the company into liquidation at the second meeting of creditors
- The company fails to meet its obligations under the DOCA.
During a CVL, a Liquidator is appointed to wind up the company’s affairs. The Liquidator’s primary duties include:
- • Collecting and selling the company’s assets
- • Conducting investigations into the company’s affairs and the actions of its directors
- • Distributing the proceeds from asset sales to creditors in accordance with the Corporations Act 2001.
A CVL can have significant consequences for a company and its directors, including:
- • The company ceases to trade and is deregistered
- • Directors may face personal liability for the company’s debts in certain circumstances
- • Directors may be subject to investigations and potential legal action by the Liquidator or the Australian Securities and Investments Commission (ASIC).
Given the potential ramifications of Creditors’ Voluntary Liquidation, it is crucial for small business owners to seek professional advice early on if their company is experiencing financial difficulties.
By working with experienced debt restructuring experts, such as AVA Advisory, directors can explore alternative options, such as Voluntary Administration or a DOCA, which may help the company avoid Liquidation and continue trading.
Knowing when to seek help
Don’t wait until it’s too late. The most mission-critical action a director or business owner can take is proactive early intervention.
At AVA Advisory, we have a deep understanding of the Australian debt landscape, as well as the complex challenges small and medium businesses face. With a commitment to providing expert advice and support, we approach your situation with compassion and a solution-oriented mindset.
Our team of experienced debt advisory and restructuring professionals can assist directors and owners by:
- • Conducting a comprehensive review of the company’s financial situation
- • Identifying potential risks and opportunities for improvement
- • Developing tailored strategies to address cash flow issues and optimise operations
- • Providing advice on restructuring options, including Voluntary Administration and deeds of company arrangement (DOCAs)
- • Liaising with creditors and other stakeholders on behalf of the company.
We work closely with business owners to ensure they have a clear understanding of the Voluntary Administration process and its implications for their business.
Call us today on 1300 181 220 or book a cost-free, obligation-free consultation through our website to learn more about how we can support your business during challenging times.
