If Directors of a company are of the opinion that their company is insolvent or is likely to become insolvent at some future time, then the Directors should resolve to appoint a Voluntary Administrator. Failure to do so may result in the Directors becoming personally liable for insolvent trading.
We are appointed as Administrators of many companies in this way.
Secured creditors also have the power to appoint an Administrator.
The purpose of the VA regime is to provide for the business, property, and affairs of an insolvent company to be administered in a way that:
a) Maximises the chances of the company, or as much as possible of its business, continuing in existence; or
b) Results in a better return for the company’s creditors and shareholders than would result from an immediate winding up of the company.
During the VA period, the Directors lose their powers to deal with the assets and affairs of the company, and those powers are vested in ourselves as Administrators. Sometimes we choose to trade the company on until such time as the future of the company has been decided. Otherwise, we may close the business down and in some cases, immediately start selling its assets.
A Deed of Company Arrangement (DOCA) can be agreed to between the company and its creditors. A DOCA which is normally proposed by the Directors, typically provides for creditors to receive a dividend of ‘x’ cents in the dollar and stipulates where the funds will be obtained from in order to pay the required dividend (for example, from the sale of assets and/or future profits from continued trading). If a DOCA is agreed to, the VA comes to an end, we become the Deed Administrators and the company continues in existence, but is subjected to the terms and conditions of the DOCA.
If no DOCA is proposed, or, one is proposed but the creditors reject it, then the company gets wound up and we become Liquidators of the Company (unless the Creditors chose to appoint someone else).
The third alternative available is for creditors to resolve that the company be returned to current management.