The Basics of Administration: What's it all about?

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Let’s discuss the basic mechanics of what a Voluntary Administration is all about and how the process can work for an insolvent client.

Set out below are the answers to some of the most common questions we are asked about Administrations. The answers are broad and generic and in all instances we recommend that specific advice be obtained before acting in response to any one of the questions:

When should a company go into Voluntary Administration?

When a company has become insolvent or is likely to become insolvent and there are no other legally available alternatives to come to an arrangement with the company's suppliers.

Often, this occurs when key suppliers can not be paid or the company has suffered a judgement debt that can not be met.

How do you appoint an Administrator?

The directors of the company appoint an Administrator after obtaining the consent of the proposed appointee, passing a resolution and executing a formal notice.

What happens next?

When an Administrator is appointed, he/she takes over control of the company and manages it in the interest of all creditors. The Administrator calls two meetings of creditors. The first is held one week after the appointment and the second is held roughly one month after the appointment. Over this period of time the directors devise a plan for the recovery of the company. This plan is presented to the creditors and voted on at the second meeting of creditors.

What is the Outcome?

If creditors accepted the proposal offered to them, the company would execute a Deed of Company Arrangement which freezes all unsecured creditors claims so that they can be satisfied in the Deed. The directors regain control of the company and can continue to trade it as soon as the Deed is signed by all parties.

If no proposal is put to the creditors, or the proposal is rejected, the company will pass into liquidation.

The above are simple answers to typical questions. There are many other issues to be considered regarding Voluntary Administrations that need far more detailed responses.

Macks Advisory can help and advise companies and directors with solvency problems and can act as a Voluntary Administrator if such an appointment is necessary. Members with queries are invited to contact Peter Macks of Macks Advisory on 08 8231 3323 or e-mail [email protected]