Voluntary Administration is quickly and simply initiated by a resolution of a company’s board of directors if there are concerns about the company’s solvency. While the Administrator acts independently, they often work closely with the company’s directors in regard to ongoing trading, sale of assets, and formulating a proposal to put to the company’s creditors, as necessary. This type of external administration provides a brief to take stock of a company’s financial position with minimal disruption to trading (if applicable) and provides an opportunity to put forward a Deed of Company Arrangement proposal to creditors (refer below). Voluntary Administration lasts 5 weeks, although creditors may agree to extend that period by a further 45 business days.
Deed of Company Arrangement
During a Voluntary Administration a Deed of Company Arrangement (or DOCA) proposal can be put to a company’s creditors which, if accepted, results in the company being returned to the full control of its board. Typically, a proposal will involve external funding contributions to provide some return to creditors. The Administrator must provide a recommendation for or against the DOCA prior to the last meeting of creditors during a Voluntary Administration.
Creditors Voluntary Liquidation
Despite the name, this type of appointment is initiated by a company’s shareholders if they (and the company’s board) are of the view that the company is insolvent. Once a company is placed into Liquidation, the appointed Liquidator will notify all creditors and deal with any existing leases/contracts and employees. The Liquidator must cease a company’s trading activity reasonably quickly after they are appointed. The Liquidator keeps a register of creditor claims and advises creditors in due course as to whether or not there are sufficient funds to declare any dividend.
Members Voluntary Liquidation
This type of external administration is used to wind-up the affairs of a solvent company in an independent and orderly manner. The Liquidator attends to realisation of company assets, adjudication of creditor claims, and declaration of a dividend. Any surplus funds are returned to shareholders.
Official (or Court) Liquidation
A court application can be made to have an Official Liquidator appointed to a company by a creditor or other interested eligible party. The costs of the application have priority to be reimbursed from any funds in the resultant Liquidation before any dividend is declared. Once a court order is made, the Liquidator takes control of the company and conducts investigations into its affairs. The Liquidator will deal with any existing leases/contracts and employees.
If there is an unresolved dispute between directors, a risk of company assets being disbursed improperly, or some other compelling reason, a court application can be made at short notice to have a Provisional Liquidator appointed. The scope of a Provisional Liquidator’s powers are set in the court order, but generally are broad enough to transfer full responsibility of the company’s affairs. Typically, a Provisional Liquidator is required to report back to court towards the end of their appointment.
Receivership / Controllership
A creditor holding a registered security interest may elect to appoint a Receiver (or a Controller) over a company to take control of company assets which are within the scope of collateral as defined in their lending agreement. While a Receiver/Controller has duties to appropriately sell assets subject to their appointment, their primary reporting responsibility is to the secured creditor only. Typically, a company may have a Receiver/Controller appointed over it, while simultaneously having either an Administrator or Liquidator separately appointed.
Send SM Solvency Accountants a Message