The Voluntary Administration process is set out in Part 5.3A of the Corporations Act and is a formal mechanism to allow for an insolvent company to be restructured to ensure its survivability, or if it is not possible for the company to continue to exist, this process would allow for a better return to the creditors and members than compared to an immediate wind-up scenario.
An informal restructure should be considered at the first instance. Some of the reasons why is that it is cost-effective, directors retain control of the business and the immediate value of the Company is preserved as there is no negative connotations or bad publicity that is usually experienced when a company is in administration.
However, there are times when a voluntary administration is necessary.
Some scenarios are as follows:
- When there are creditors who refuse to compromise on payment terms during the informal restructuring phase
- When such uncooperative creditors threaten to commence legal proceedings against the Company, and the appointment of a Voluntary Administration prevents enforcement action by creditors
- A Director Penalty Notice (“DPN”) was received by the Director, and the only way to “remit” the DPN is to appoint an Administrator or Liquidator
- To enter into a Deed of Company Arrangement (“DOCA”), which effectively binds all unsecured creditors, on the assumption that a majority of creditors in value and number vote for in favour of the DOCA. A DOCA is a mechanism that will allow for the company to formally propose payment terms and time frames for these payments.
In any event, seeking professional advice early would help determine the best way forward. At Olvera Advisors, we partner with many different businesses across many industries, at various stages of their life cycles.
For more information about how voluntary administration may help your company contact us today online or on 02 8880 4070.