So your business is running into some serious financial strife and it seems as though you cannot pay all your debts as they fall due. The dreaded word: “insolvency” comes into the picture. Winding up (liquidating) your company and deregistering it may be the only option left. But have you considered voluntary administration? Perhaps LegalVision may be of assistance. Administration can either be voluntary or involuntary. Here, ‘voluntary’ means that the administration process is initiated from within the company, rather than ordered from the court.

The law recognises that winding up may significantly impact not just your business but also your manufacturers, retailers and ultimately your customers. Therefore, administration is a process that is an attempt to save your company from liquidation.

Simply put, the process for voluntary administration can be divided into three steps:

Step 1

Also known as the “initiating” phase, it starts by appointing an administrator. This involves the calling of the first meeting of creditors. At this first meeting, the administrator will either confirm that he has been appointed and perhaps appoint a Creditors’ Committee that will work with the administrator in representing the creditors’ interests and concerns. After the first meeting, the administrator will come in immediately and, over a very short period of time (weeks, not months), investigate the company’s financial status and prospects of continuing as a company.

Step 2

Referred to as the “decision” phase, it involves conducting the Second meeting of creditors. At the meeting, the administrator has the duty to report to your creditors and give his or her opinion as to whether the company can be saved or ought to be liquidated. The creditors then can choose one of the following options:

  1. To save the company (accept the Deed of Company Arrangement (DOCA)): If the creditors decide to save the company, a proposal to save the company – the DOCA – may be put forward. For example, the DOCA may propose an extension of debt payment or for creditors to receive less debts. The creditors must vote in favour of the DOCA (i.e. by simple majority) for it to be executed. The advantages of a DOCA mean that a number of changes can be introduced quickly and with minimal cost;
  2. Decide that the company should be liquidated (reject the DOCA); or
  3. Cancel the administration process and the company will continue as if administration had never started. This situation is extremely rare.

Step 3

The final step is known as “transition” phase of administration and means that the company either:

  1. Signs the DOCA and carries it out in accordance with its terms. Then the company should be ‘healthy’ and be able to continue operating; or
  2. The company ceases and arrangements are made for it to be wound up (liquidated).

Conclusion

The inconvenience and complexity of Voluntary Administration is definitely a testing and worrisome time for anyone. Therefore, it is strongly advised that you consult with an Insolvency lawyer to fully understand your best options for your business. If you would like to discuss your situation with our Client Care team, please complete the form or give us a call. We will then assess your needs free of charge and provide a fixed-fee quote if relevant. Just give us a call on 1300 544 755.

Lachlan McKnight

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