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Corporate insolvency services

Voluntary Administration

Voluntary Administration

Businesses today operate in an increasingly dynamic and competitive environment. Slowing growth patterns, increased competition and an uncertain economic outlook all present threats to performance and viability.

A company can face unexpected cash flow problems, even if it is trading profitably. Often it can trade out of temporary cash flow problems without external assistance. However, if this cannot be achieved, Voluntary Administration provides a framework for a company and its creditors to negotiate a compromise, whilst protecting the key stakeholders.

A Voluntary Administration is an invaluable tool available to companies facing financial stress. At times, it will be the only avenue available to a company to address its short term financial problems and return it to a position of financial strength.

Symptoms of Insolvency

The presence of any of the following may flag solvency problems that could be addressed through Voluntary Administration:

  • Ongoing losses;
  • Bankers defaulting payments;
  • Exceeding overdraft limits;
  • COD terms imposed by suppliers;
  • Defaulting on statutory and other essential payments;
  • Debt recovery or legal action;
  • Asset sales to fund trading;
  • Falling inventory levels;
  • Accumulating obsolete inventory;or
  • Postponement of essential maintenance to save money.

Protecting Stakeholders

Voluntary administration addresses the critical needs of stakeholders in three important ways:

  1. It removes creditor pressure from the business, allowing a focus on trading, rather than juggling the competing demands of creditors.
  2. Assets and operations are protected by placing them under the supervision of an independent professional, the Voluntary Administrator.
  3. It provides a statutory framework for negotiation with creditors, assisted by the preparation of a report by the Voluntary Administrator.

Initiating Administration

A Voluntary Administration appointment can be quickly and inexpensively implemented by a resolution of directors. Secured lenders may also appoint a Voluntary Administrator.

The diagram below sets out an overview of the process of a voluntary administration appointment.

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Immediate Protection

Voluntary Administration is designed to keep a business together until the Voluntary Administrator has had the opportunity to assess the position and prepare a report and make recommendations.

To assist the process, recovery action by creditors is frozen.

Excepting with permission of the court or the Voluntary Administrator:

  • Leased and hired equipment cannot be repossessed;
  • Personal Property Securities Registered (PPSR) assets (eg. Reservation of title over stock) cannot be removed;
  • Contracts such as franchise agreements cannot be terminated;
  • The business cannot be forced to vacate leasehold premises; and
    Secured lenders cannot enforce their security except in limited circumstances.

Deeds of Company Arrangement

Deeds of Company Arrangement

A proposal for a Deed of Company Arrangement (DOCA) can be put to creditors by the Voluntary Administrator.

The Voluntary Administrator must recommend whether the DOCA is in the best interests of creditors. The test for any DOCA proposal is whether creditors will receive a higher dividend under the proposed DOCA compared to liquidation. Creditors must first approve the proposal for a DOCA at the second meeting of creditors (which is at the end of the Voluntary Administration process). If the DOCA is approved by the majority of the creditors (in both value and number), it then becomes legally binding on all unsecured creditors once executed by the Company and the Deed Administrator (who will then administer the DOCA). A DOCA proposal can be extremely flexible. A few examples of a DOCA proposal may be as follows:

  • An immediate one off payment (usually a third party contribution made by a director or shareholder) to creditors in full and final settlement of their claims; or
  • An immediate payment to creditors (usually a third party contribution made by a director or shareholder) with the possibility of a further payment to be made from the proceeds of litigation or through the realisation of assets; or
  • A series of payments to be made from the profits of ongoing trading for a specified period, conducted under the supervision of the Deed Administrator.

*Please remember all proposals for a DOCA must put creditors in a better position than if he company was simply liquidated.

Liquidation

Liquidation – Creditors’ Voluntary & Court Appointed

If you determine your company is not in the position to be restructured, and its stakeholders have no alternative but to wind-up its affairs, then you should consider a voluntary appointment, such as a Creditors’ Voluntary Liquidation.

Creditors’ Voluntary Liquidation

If your company is insolvent and you don’t wish to save it then the most efficient process to bring the affairs of the company to an end is a Creditors’ Voluntary Liquidation.

The directors and shareholders can initiate a Creditors’ Voluntary Liquidation. A company can be placed into a Creditors’ Voluntary Liquidation immediately, if 95% of the shareholders consent to the appointment. Once the Liquidator is appointed, any remaining assets will be sold and distributed to the creditors in accordance with the priorities as set out within the Corporations Act 2001.

At CRS, in most circumstances, we are happy to quote a fixed price for a Creditors’ Voluntary Liquidation.

Court Liquidation

An involuntary liquidation is normally initiated by a creditor and the appointment of a liquidator is made by an order of the Court. Normally a creditor who is owed money would first obtain judgement for the debt from a local or district court, depending upon the amount owed. Once judgement has been obtained the creditor would issue a statutory demand. A creditor may then apply to Court for the winding-up of the debtor company and the Court may appoint a Liquidator or a Provisional Liquidator.

At CRS we are registered to act as Court appointed liquidators. We would be happy to discuss consenting to act as a liquidator or provide you with commercial advice if your company is confronted by  a winding up application.

Free Consultation

If your company is facing insolvency or is already insolvent we  are happy to meet with you to discuss your options. Our first consultation is always FREE.

For free immediate professional advice, call us on our 24 hour hotline at 1800 210 073 to speak to one of our expert staff about your situation and options.

Or if you prefer, you can email us at info@crsinsolvencyservices.com.au and we will get back to you as soon possible.

Do not hesitate to contact
us today for your initial no
cost consultation with one
of our experts.