Running a successful business requires passion, commitment, hard work and a certain element of luck. Sometimes despite your best efforts and intentions your luck will turn and your business will start to struggle financially. If your business is heading for a state of insolvency, you have to act quickly to avoid prosecution. The Voluntary Administration Process gives you time to examine your business, find areas for improvement and implement change with out having to worry about your finances.
A Brief Overview of the Voluntary Administration Process
- The directors of the company resolve their business is headed towards insolvency and enter into Voluntary Administration
- A Voluntary Administrator is appointed.
- Creditors must cease all recovery action within the Voluntary Administration period (20-25 days)
- The Voluntary Administrator will review each aspect of your business and suggest improvements and changes to your business structure, staffing, management and operations. These changes will improve your financial position. They may also suggest a Deed of Company Agreement (DOCA).
- At the end of the Voluntary Administration your creditors will review your restructure and vote to return the company to the directors control with the changes in place, approve the DOCA or wind up the company and appoint a liquidator.
The Voluntary Liquidation Process gives the company it's best shot at survival when faced with short-term cash flow issues or one off financial complications.
When to Consider Voluntary Administration
It is illegal for a company to trade when it is insolvent. Before your business reaches a state of insolvency, there may be things you can do to turn it around. You could restructure, improve processes, cut back on resources, implement new marketing strategies, etc. The Voluntary Administration Process allows you to explore these options and implement changes without the looming threat of creditors.
What Happens to the Debts You Owe?
Your creditors aren't allowed to make any recovery action while your business is in Voluntary Administration. However, this provides valuable time for your Administrator to find the best return for your creditors. Part of their finding in the Voluntary Administration Process might include a Deed of Company Agreement. This is a formal arrangement between you and your creditors offering them the best return possible after the Voluntary Administration changes.
If your creditors are presented with a Deed of Company Agreement and they accept the offer, they will vote at the end of the Voluntary Administration Process, which usually lasts for 20-15 days. Once it has been accepted, you are legally obliged to adhere to the terms of the agreement.
Possible Outcomes From a Voluntary Administration
At the end of the Voluntary Administration Process, a report is presented to your creditors. This will outline the restructure and changes implemented to improve your situation. If your creditors are satisfied with your plan and believe the restructure will improve your financial situation enough to repay your debts control of the company will be returned to the directors to operate under the plan.
Your Administrator might also negotiate a Deed of Company Agreement with your creditors. Often, this is an agreement where your creditors agree to accept less than the original debt in satisfaction of what you owe. If your creditors agree they will vote to accept the Deed of Company Agreement and control of the company will be returned to the directors to repay the debt according to the Deed. Your administrator might find it is impossible to turn the company around through a restructure and Deed of Company Agreement. In this instance, your creditors may vote to liquidate your business and a liquidator will be appointed.
The Benefits of Voluntary Administration
- It provides a company with breathing space to deal with creditors in an orderly manner and prepare proposal to give the best return to stakeholders
- It allows an independent party to review the company's affairs and deal with the pressures of creditors
- It reduces the possibility of secured creditor proceedings against the assets of the company
- It may allow the company to stay out of liquidation
- If the voluntary administration attempt fails, the legislation facilitates the winding-up of the company.
Is Your Business Struggling?
If you are struggling with personal or business debt call Revive Financial on 1800 861 247. We offer a number of debt relief solutions to help you out of any debt situation whether you are in a jam with your business, in your personal life or both.
Our professional Case Managers will go through the details of your situation and suggest the best plan for you going forward whether it be a Voluntary Administration for your business or a Part IX (9) Debt Agreement for you. We work with a number of trusted professionals to expand our offering and help you with your debt.
For more information on business debt and how we can help, check out our business debt page.
