As we discussed in our previous article Voluntary Administration, Not A Dirty Word, the unfortunate stigma of VA comes when businesses on the verge of collapse require an urgent overhaul.
As a legal concept, Voluntary Administration is a process under the insolvency laws working to salvage a financially struggling business or company. A majority decision from directors or owners of the insolvent business will appoint an independent administrator to manage the company’s assets and financial obligations as business continues trading. Most importantly, it allows the company time, while the administrator explores the best options for the owners/ directors and the creditors, without involving the legal system. Options look at business restructure, a sale to new owners, or liquidation - dismantling the business into elements that can be sold or closed. Creditors do not receive any distribution of funds during this period.
- is inexpensive to launch and set up
- allows business to continue trading
- provides creditors with an independent review of the company and its viability, and
- provides the means for a compromise between a business and its creditors.
Sometimes, the owners or directors may keep control or a part share in the business. Often the business is sold, allowing for employees to keep their jobs.
A business or company looks at Voluntary Administration when it’s
- insolvent and needs a deal with creditors
- had a loss or bad trading period causing serious financial problems
- a viable business but needs to hold off creditors to allow time to cut debt and reduce costs and staff, while allowing for time to build up sales and profits.
Creditors can decide on the following for the company’s future
- Return the company to the control of the directors.
- Enter the company or business into a DOCA. If creditors allow for the company to enter a DOCA, the business must do so within 15 business days. If they do not, the company automatically heads into liquidation. For the DOCA to be approved, the meeting must pass a resolution with 50% in number and value. This is often complicated depending upon each creditor’s rights to vote and the amount of their claims.
- Place the company into liquidation with an appointed liquidator dismantling the company’s assets and proceeds to wind up the company. At the end of the liquidation process, the company is deregistered.
In complicated cases, this five-week deadline can be extended.
Voluntary Administration allows the company to continue trading for a brighter and more secure future.
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