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Explaining the Voluntary Administration process
Written on the 23rd of August 2010 by Fiona Taylor & Richard Hughes
With the recent increase in insolvencies and some industries faring poorly, it is perhaps timely to explain the Voluntary Administration process.
In short, the voluntary administration process allows a company experiencing cash flow or solvency problems breathing space from its creditors to restructure.
Importantly, the final decision on the future of the company rests with the creditors.
Voluntary administration is used regularly by companies in distress, principally because directors are required to take steps to avoid trading whilst insolvent – and trading whilst insolvent can attract severe consequences.
To initiate the voluntary administration process administrators are generally appointed by the directors by a board resolution, to take control of the company and represent all creditors’ interests.
The administrator takes control of the company and the directors lose their power to contract on behalf of the company. The debts of trading incurred after the appointment of an administrator then become the personal liability of the administrator.
Most restructures prior to the enactment of the voluntary administration regime were attempted outside of an insolvency procedure.
There’s a number of effects on suppliers, landlords, creditors and other stakeholders.
The company’s destiny is in the hands of the creditors. The administrator recommends the course, however, the creditors are the body with the ultimate power to vote the resolutions at the meeting.
DOCA’s have also been used to re-list insolvent companies on the ASX.
Author: Fiona Taylor & Richard Hughes