When your company is faced with financial distress and insolvency issues, voluntary administration may be one of the solutions to consider. Voluntary administration is designed to keep your company afloat and improve the company’s financial position with the assistance of a qualified administrator. Here is a easy summary of the steps in voluntary administration:

Step 1: Initiation from directors

The decision to appoint an administrator will be done in writing and through a board resolution. A company may also be placed under administration by a liquidator or secured creditor. When the administrator is appointed the voluntary administration will begin.

Step 2: First meeting with creditors

The first meeting held with creditors is required to be held within eight business days after the voluntary administration begins. In this meeting creditors can vote whether to replace the administrator that the company has chosen, which will require written consent from an alternative administrator post meeting.

Step 3: Investigation and business report sent to creditors

After the meeting, the administrator will take over the company’s assets and affairs, the right to run the business and investigate the status of the company and send a report to the creditors.

Step 4: Second meeting with creditors

The second meeting is required 20 to 25 days after the administrator was first appointed. The purpose of the meeting is for the administrator to present their report and the creditors to vote on the following options:

1. Return the company back to the directors, or
2. Enter a deed of company arrangement, or
3. Place company in liquidation

If you would like to learn more about voluntary administration or considering appointing an administrator you should contact us on 1800 210 073. Our insolvency hotline is open 24 hours 7 days a week.

The Corona Virus fallout is going to materially affect many businesses including sole traders, partnerships, corporate organisations in the Small and Medium Enterprise space, Large corporate and listed organisations and many Government agencies.

What is certain is that they are all facing similar challenges that have arisen a result of the onslaught of the global Corona Virus and the collapse of global financial markets.

In my view, if we panic the situation will only escalate and drive further negative sentiment and uncertainty.

The difficulty for all those organisations, their owners and stakeholders is to determine how long the position will take to rectify and what steps and planning are necessary to manage the situation which most people and businesses have never had to face previously.

In order to address those issues, besides for taking the relevant and appropriate suggested steps in relation to health and operational issues, those organisations will be forced to assess their current financial and market positions, plan and take steps required to mitigate their future positions and in the event that where the businesses are going to be so severely impacted, they will need to take external advice from the relevant professionals such as accountants, lawyers and others, depending on the industry sector or specialisation the business may be involved in.

Many businesses small and large may unfortunately need to close or go bankrupt, but the endemic issues facing those organisations were likely to have existed prior to the Corona Virus invasion.

In relation to that advice, key issues will need to be considered and those advisers will be required to assist their clients in a way that may well be outside of their normal professional expertise. They in turn may be required to engage with other industry experts and provide collaborative and strategic advice to their clients. Therefore, looking at the current scenario and applying some basic business concepts, organisations and their key stakeholders should consider key issues, which could include the following:

• Cash flow in relation to the current and expected future position what steps would they be required to take to ensure they have sufficient cash resources to deal with their businesses being interrupted for at least 3-6 months (hopefully no longer);
• Managing financiers including the banks, trade and asset financiers, insurers and others to ensure those financiers are kept fully informed of the business situation, the owners and managers financial and personal positions and what steps are being taken by them to address the current, future and other issues;
• Other stakeholders would include, employees, customers, suppliers and landlords;

In relation to Bankers and financiers – these stakeholders are aware of the global crisis and should be engaged as soon as possible. It is expected that they will have an understanding and provide empathy to customers who may not be able to meet their ongoing commitments in a normal fashion or to comply with their existing facility covenants, until the situation rectifies itself. This assistance may include payment and interest moratoriums and where possible agreement to approve reasonable facility excesses or bridging loans. Clients will however be required to provide reliable and accurate financial and other information in order to succeed with the support they require.

In relation to suppliers, (even where they are facing similar situations), they should be encouraged and requested to provide ongoing support which may include continuing delivery of goods and orders in order to maintain their customers trading ability and provide ongoing commercial credit to enable the customers to manage payments during these extremely difficult circumstances.

Employees – most organisations are taking the necessary steps to protect employees and their families and discourage exposure to unnecessary business and social interaction by temporary closure of offices with staff working from home. Those who are not able to do so, are putting in place World and Australian Government Health Organisation guidelines to provide the safest work place environment possible. What will be vital, is to communicate clearly and provide employees with assurances that despite the current circumstances the businesses will continue to employ their staff in the best interests of all concerned. Where that is not possible, they should consult their financial and legal advisers or Government agencies.

Other organisations may include statutory and quasi bodies such as the Australian Tax Office, Office of State Revenue, Workers Compensation Insurers etc. These organisations should be made aware of any issues the business is facing, or may face in the future and where possible arrange interest free payment arrangements or other assistance to assist in managing the organisations’ cash flow.

Landlords – These key stakeholders which include, retail, commercial and industrial and infrastructure landlords will likely face large numbers of tenants requesting assistance in order to survive. Where possible, in the interests of providing a lifeline, temporary arrangements should be facilitated to assist. Some retail landlords are already offering 3 months rent free periods. Landlords will of course need to approach the same stakeholders that their tenants have to deal with, whether they are financiers, suppliers of services and goods or staff in order to manage the current crisis they are facing.

Directors of listed and large Corporate companies who find themselves in difficult financial circumstances as a result of the Corona Virus may avail themselves in greater numbers of the Safe Harbour protection in accordance with the Corporations Act. The safe harbour provisions, which commenced in 2017, will protect directors from personal liability for debts incurred by an insolvent company if, after a director ‘starts to suspect’ that the company may become or is insolvent, the director starts developing a course of action that is ‘reasonably likely to lead to a better outcome’ for the company than the immediate appointment of an administrator or liquidator. In order for the safe harbour to apply, the debt incurred by the company needs to be ‘directly or indirectly’ in connection with that course of action taken by the director. Part of the business plan may well include some of the strategies addressed above.

Individual stakeholders and business owners such as Specialists, GP’s, Dentists, Physio-therapists, Optometrists and others who need to engage with patients face to face have to address more difficult issues. Besides from taking the necessary health precautions, they cannot manage their businesses remotely and if they are required to close for any of the Corona virus issues, they will have to manage their practices in the same way as any other businesses but for the fact they cannot operate remotely and will face cash flow pressure for the relevant period until the virus is eliminated.

What is certain is that we are all in this together and as long as we take measured steps along the way, we will all hopefully be able to get through these challenging days, weeks and months. If expert advice is required take it earlier rather than later.

If you or any of your clients or stakeholders have any questions or concerns in relation to the above, please call Trevor at CRS Advisory on 0412138130 to have a no charge discussion.

It is important to know your duties as a director to ensure compliance in general and specific legislations. Directors who breach these duties may be subjected to civil and criminal penalties.

General directors’ duties:

General duties are imposed by the Corporations Act on directors and officers of the company which includes:

• The duty to exercise your powers and duties with the care and diligence
• Acting in good faith and in the best interest of the company
• To not improperly use your position to gain an unfair advantage for yourself or for someone else,
• To not improperly use information obtained through your position to gain an unfair advantage for yourself or for someone else, or to cause detriment to the company.

Duty to not trade while insolvent (Corporations Act Section 588G Insolvent Trading):

In addition to general director’s duties, you also have a duty to prevent the company from trading if it is insolvent. A director may incur civil and criminal liability for debts incurred during trading if there are reasonable grounds to suspect that the company is, or may become, insolvent. Hence it is important to be constantly aware of your company’s financial position.

Duty to keep books and records (Section 286):

Your company needs to maintain correct and adequate financial records to explain its financial position and performance. A director may become personally liable if they fail to take reasonable steps to ensure the company meets this requirement under the Corporations Act. In the situation of actions against the director for insolvent trading, the company will generally be presumed to have been insolvent during the period in which it has failed to keep adequate final records.

If you believe your company is in financial trouble or concerned about your duties as a director, you need to consult with an insolvency specialist. At CRS Insolvency Services, our consultants are all highly trained in corporate insolvency assignments. We will provide professional advice to help you make the best decision for your company while avoiding personal liabilities. Contact CRS Insolvency Services on 1800 210 073 for 24/7 free expert advice now.