What is Voluntary administration?
Voluntary administration is designed to resolve a company’s future direction quickly. An administrator is appointed by the company’s board of directors to take control of the company’s management and property, while at the same time liaising with the directors and providing updates to creditors.
The process provides a moratorium period for company directors to consult with creditors and other stakeholders and agree on the most appropriate financial strategy. The process requires an independent and suitably qualified person (the administrator) to take full control of the company and work out a way to save the company.
The aim is to administer the affairs of the company in a way that results in a better return to creditors than they would have received if the company had instead been placed straight into liquidation. The mechanism for achieving these aims is a Deed of Company Arrangement (DOCA).
The voluntary administration period is one of negotiation and requires a qualified and independent administrator to take full control of an insolvent company to determine the most appropriate course of action.
The available alternatives for a company placed into voluntary administration other than a DOCA are:
- For the company to be placed into liquidation; or
- The company is returned back to the control of its board of directors.
The Voluntary Administration process
Appointment of administrator
The voluntary administration process officially begins when the administrator is appointed. In order to make the appointment, a decision can be made by:
- The directors (by resolution of the board and in writing);
- A secured creditor (with a security interest over all or substantially all of the company’s property); or
- A liquidator (or provisional liquidator).
The first creditors’ meeting
To get things under way, the voluntary administrator must hold the first meeting of creditors within eight business days of being appointed, unless the court allows an extension of time. Creditors are given at least five business days notice of the meeting to ensure their ability to attend.
During the first meeting, creditors will have the opportunity to decide if they want to form a committee of inspection, and, if so, who will be on the committee. This will also be an opportunity for creditors to decide whether or not they want the existing administrator to be removed and replaced by an administrator of their choice.
Voluntary administrator’s investigation and report
During this stage the administrator is responsible for investigating the company’s affairs. The investigation will include things like business operations, property, affairs and financial circumstances. After the investigation, the administrator will prepare a report to creditors that outlines their findings and their recommendations towards the future of the company.
Second meeting of creditors
The second meeting of creditors is an opportunity for the administrator and creditors to discuss any issues and the investigation and report in order to decide company’s future. The administrator must hold the meeting within 25 business days of being appointed, unless the creditors or the court approve an extension of time.
Similar to the first meeting, administrators must give creditors at least five business days notice of the meeting.
During this meeting creditors can decide to return the company to the control of the directors, accept a Deed of Company Arrangement or put the company into liquidation.
If creditors decide to accept a DOCA, the deed must be executed by the company within 15 business days following the meeting (unless the court allows an extension of time). If they decide to liquidate the company, then the liquidation process happens immediately, with the administrator typically taking on the role of liquidator.
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