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VOLUNTARY ADMINISTRATION

What Is Voluntary Administration?

Voluntary Administration is a specific legal process, which is initiated by Company Directors, to help assist the Directors with the financial management of their company.

It is a legal management process, which is initiated, as a result of the company trading with poor financial results. With proceeding to Voluntary Administration, the Directors are wishing to avoid full liquidation. It is, as such, a step that can be implemented prior to full liquidation.

Benefits of Voluntary Administration

The benefits with an appointment of an Administrator to a company, include:

  • A moratorium being placed on creditors pursuing claims against a company’s director under personal guarantees. Note: the moratorium ends if the company enters into a Deed of Company Arrangement (DOCA) or is placed in liquidation.
  • Maximising the chances of the company continuing in existence.
  • Improved outcomes, where if it is not possible for the company or its business to continue trading, Voluntary Administration usually results in a better return for the company’s creditors and shareholders than would result from an immediate liquidation of the company.

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To learn more about Voluntary Administration and how we can help your business, simply Contact Us. We will happily explain our approach and process, which will help you get a better understanding of your options and the likely next steps.

When booking a time, this can be a simple 15 minute chat or up to 1 hour – by phone, Microsoft Teams or Zoom

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Understanding Voluntary Administration

Voluntary administrations enable the continuing administration of the business, property, and affairs of an insolvent or near-insolvent company without first going into liquidation.

This is a middle ground where Companies that could survive, are given an opportunity to do so. It is now widely accepted as being an alternative to liquidation.

Voluntary Administration allows an immediate and effective solution for two very important benefits:

  • Creditors can get to understand their actual position in the Company, and
  • The Company can get some breathing space to organise a recovery plan for creditors to consider.

 

The Administrator’s Role

The Administrator undertakes:

  • Comprehensive financial assessment of the business
  • Formulates a proposal that is likely to be in best interests of creditors
  • Provides reports to creditors regarding the state of the business and the proposal

In essence, the Administrator will assume responsibility for the running of the company with the objective to allow a company to continue trading and to enable its business, property and affairs to be administered in a way that maximises the chances of the company continuing in existence.

Most Administrator appointments will be made by the Director or Board of a company.

 

 

 

Voluntary Administration Key Facts

Considering Voluntary Administration

  • The company’s Directors may only wish to appoint an Administrator if they believe a viable proposal for a Deed of Company Arrangement (DOCA) can be put forward, and that it will have reasonable prospects of being accepted by the creditors.

Liable for Debts Under Administration

  • The Administrator is liable for all debts incurred by the company during the period of administration. So, in order to continue trading the company’s business, the Administrator would seek to ensure there were sufficient funds available at the outset of the appointment, and throughout the administration period (usually 25 working days), to meet all debts and costs involved

Possible Consequences

  • The appointment of an Administrator may trigger a secured creditor to appoint a Receiver to the company.

 

When to Consider Voluntary Administration

There are often a number of signals that indicate that the business is facing financial hardship. This can be due to a number of circumstances, including:

  • Poor cashflow, where expenses are not sufficiently matched with trading income.
  • Increased costs which are not recouped through increased prices.
  • Increased outgoings, rent, fixed costs.
  • Mismanagement of accounts.
  • Overdue payments to Inland Revenue.
  • Increase in warehouse, retail and office rental space.
  • Increased pressure by creditors for tighter payment terms.

These, and many other contributing factors, can cause the business to be trading in tighter financial circumstances, to the point that their incomings cannot match the required outgoings.

Voluntary Administration | The Process and Timeline

Note: All ‘day’ references relate to ‘working days’

Simply click on each of the dates to view each of the timeline steps.

Administrator Appointed

  • The Directors appoint an independent registered Administrator, to commence the Voluntary Administration process. This is undertaken through the completion of a document signed by the Directors.
  • Once received by the Administrator, the Company Directors hand over power and authority to the Administrator.
  • This gives the Administrator the rights to commence the investigation of the financial affairs of the Company, and as a result identify appropriate solutions back to the Directors.

First meeting with its creditors

  • During the period of Day 1 to Day 8, the Administrator will be notifying all parties, including creditors, who have a charge over the company, and requesting information from creditors, to ascertain a clear position on amounts owing.
  • On Day 8, the first meeting with the creditors is held, and the appointment of the Administrator is confirmed by the Creditors.

A Watershed Meeting is scheduled with creditors

  • The administrator must schedule and arrange publication of a Watershed Meeting within 20 working days of their appointment. Also, a report is to be issued to all known creditors to include details about the company’s business, property, affairs, financial circumstances, and any other material to assist the creditors' decisions. That report must include a statement setting out the Administrator’s opinion and reasons for or against a DOCA (Deed of Company Arrangement), Liquidation, or ending the Voluntary Administration.
  • A Watershed Meeting is the meeting of creditors to decide the future of the company. It is called a Watershed Meeting because it is a watershed event in the life of the Company.

The Watershed Meeting is held with creditors. This is the 2nd meeting with its creditors.

  • This is a key meeting for the business, regarding the Company’s future.
  • At this meeting, the Administrator presents their report, which has been sent out prior to the meeting, along with their key observations and recommendations. Their report and findings include key information for the creditors and options for the best recovery of their outstanding funds.
  • The creditors as a group determine the next steps and discuss the recommendations from the appointed Administrator. Often this includes approving to proceed to develop a Deed of Company Arrangement (DOCA), if recommended by the Administrator. This specifically outlines next steps for the trading of the business. If the DOCA is not accepted, the company goes into liquidation.
  • Note: The accepted DOCA is a binding arrangement between the Company and its creditors. A DOCA releases creditors’ unsecured claims against the company but it does not release personal guarantees or other personal claims against a company’s directors or other parties.
  • If a DOCA is the agreed outcome, the Administrator must develop and circulate the draft DOCA to all creditors, within 10 working days following the Watershed Meeting.
  • Within 15 working days of the Watershed Meeting, the creditors must sign and accept the DOCA.
  • To be accepted by the creditors, a majority in number and 75% in value must accept the DOCA.
  • If the majority do not accept the DOCA, then the business proceeds into liquidation. Processes and procedures under Part 16 of the Companies Act become effective immediately, upon the resolution being passed.

The law clearly states that the objective of Voluntary Administration is to administer its affairs in a way that maximises the opportunity of the Company to continue in existence.

Voluntary Administration is an alternative to liquidation, and it is the mission of the Administrator to achieve that outcome.

How this will be done is unique to each different Company and the proposed approach will be covered fully in the Administrators Report, also referred to as the Deed of Company Agreement.