Voluntary Administration

Appointing a Voluntary Administrator (VA) is like taking a time out whilst allowing you to consider all your options. The company’s directors need only pass a resolution that the company is insolvent or likely to become insolvent for it to appoint a Registered Liquidator as a Voluntary Administrator. 

The Voluntary Administrator’s key responsibilities are to assess the viability of the business, to maintain it as a going concern if at all possible and to enable creditors to receive a result that is better than would be achieved from the immediate winding up of the company.  A Voluntary Administration allows creditors to consider what action will maximise their return.

The VA must investigate the reasons for insolvency and establish when the company became insolvent.  This is particularly relevant where the company’s proposal involves trading on and contributing to creditors from future generated profits. 

The VA is responsible for the following:-

• when the business is trading on, ensuring business as usual as the best result for creditors is dependent upon the business continuing uninterrupted;
• Taking physical possession and meeting staff to provide the reasons for the appointment and outlining plans moving forward;
• Ensuring an adequate level of insurance cover;
• Obtaining independent valuations for planning and constructing an acceptable proposal to creditors and for the Report as to Affairs;
• Ensuring adequate stock is maintained and purchase orders are made in line with sales expectations;
• Reviewing financial controls and introducing procedures including the VA possibly signing all cheques, the opening of new company bank accounts, signing stock orders; and
• Freezing payments to unsecured creditors.  A moratorium is imposed on unsecured creditors and an unsecured creditor is unable to take action to enforce its debt.

It is important to understand that it is only a Liquidator, when appointed, that is able to take recovery action against Directors guilty of breaching the Corporations Act.  The VA is required to identify and comment on the occurrence of these matters and to report to creditors on the likelihood of recovery being made by a Liquidator. 

At the first meeting of creditors, the creditors have the power to appoint a creditors’ committee .  The VA is still examining the company’s records and valuations, budgets and cash flows are still being prepared.  However the VA endeavours to provide relevant information to the creditors as to the present financial position and their plans.

The VA must provide a report to the second meeting of creditors and the meeting must decide the company’s future.  Should the company be wound up and converted to a Creditors Voluntary Liquidation, should the Administration end or should the company execute a Deed of Company arrangement?