Is Voluntary Administration The Right Option For Your Business?

By: DPN | Jan 15, 2023

Deciding to enter voluntary administration is a huge undertaking for a business.

Understanding what it means and how it can impact your business can be daunting and overwhelming.

In this blog post, we’ll explore the considerations to consider when evaluating voluntary administration as a potential solution for your business.

What Is Voluntary Administration?

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Voluntary administration is a legal process that enables an insolvent company to restructure its business and attempt to continue trading. It allows the company to either stay afloat and pay back its debts in full or renegotiate with the company’s creditors if it can’t make repayments under its existing conditions.

The voluntary administration process involves a qualified and independent insolvency practitioner appointed as an administrator who will assess the company’s affairs and position and liaise with creditors.

Voluntary Administration as an Alternative to Liquidation

When an Administrator is appointed over a company, two options are given to creditors when deciding the company’s future. They will either choose to Liquidate the company or enter Voluntary Administration, which offers creditors such as the ATO a higher return.

Companies like DPN Help establish what this entails so that you, as the director, know how you will retrieve control of the company and not inhibit continued trade of the business.

What Is the Role of a Voluntary Administrator?

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A Voluntary Administrator plays an important role in certain insolvency scenarios. For instance, when a company cannot pay its debts or meet its liabilities, it may enter into Voluntary Administration to assist the directors of the company in restructuring the arrangement. It can include:

  • arranging meetings with unsecured creditors and secured creditors
  • attempting to sell off necessary assets
  • and proposing a binding arrangement can be agreed upon.

In all matters concerning a company’s insolvency, a Voluntary Administrator works diligently to balance out the interests of the company and its creditors in attempting to recapture, as far as possible, some return from the company’s assets.

How Does a Company Appoint a Voluntary Administrator

When a company needs to appoint a voluntary administrator, it is important to start the process by seeking advice from an advisor that represents you and your company’s interests. Such advisors can advise on the best plan of action for your company and guide a company through the process of appointing a voluntary administrator.

Once chosen, directors must take steps to ensure that the appointed voluntary administrator is registered as required. Through this process, individuals and companies involved become aware of their roles and responsibilities, ensuring no conflicts of interest.

The Process of Voluntary Administration and the Key Steps Involved

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The process of voluntary administration is complex but ultimately provides businesses with a lifeline when they find themselves in financial difficulty. For any business owner considering voluntary administration, understanding these key steps involved can make it much easier for them when navigating this challenging situation.

  1. Appointing an Administrator: The first step in voluntary administration is appointing an independent administrator. This individual must have experience in dealing with insolvent businesses and be able to provide sound advice and guidance on the business’s most suitable course of action.
  2. Reaching Agreement with Creditors: Once an administrator has been appointed, they will contact all creditors to whom the company owes money. Via the administrator the business owner can propose an agreement whereby part or all of what is owed may be paid back over an agreed period.

The Pros and Cons of Pursuing Voluntary Administration for Your Business

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The Pros Of Voluntary Administration

  • One of the primary benefits of voluntary administration is that it provides breathing space for businesses experiencing financial hardship.
  • By appointing an independent administrator, directors can step back from making decisions about their company’s future and let an expert guide them through the process.
  • It can help relieve some of the stress associated with running a struggling business while ensuring that all decisions are made in line with best practices regarding corporate restructuring and insolvency law.

The Cons Of Voluntary Administration

  • One major drawback to voluntary administration is that it can be costly.
  • Furthermore, there is no guarantee that your company will emerge from voluntary administration in any better shape than before; depending on your particular situation, liquidation might still be necessary even after undergoing this process.
  • Finally, you should remember that if your creditors decide not to accept any proposed arrangements during this period, they can petition for liquidation instead.

Final Thoughts

Voluntary administration can provide invaluable support to businesses who have already exhausted all other options, but it should never be seen as a quick-fix solution. Before pursuing voluntary administration, you must weigh the risks and rewards involved to make an informed decision about what is best for your business in its current circumstances.

If you would like further advice on whether or not voluntary administration might be right for you, please do not hesitate to contact DPN Help today. We know time is of the essence in these situations. Our friendly team of experts are here to help. Contact us today.

About DPN Help

We are a national team with a collection of experts across Advisory, Accounting, Restructuring, Finance & Legal. We are dedicated to helping business owners go from floundering to flourishing. Our years of experience provide you with tailored solutions, and innovative action plans to get you and your company the best outcome.
When working with DPN Help, you can be assured that you are working with genuine company restructure experts and specialist tax negotiators. We are not liquidators, our goal is to keep you trading if it is still financially viable. We always represent your best interest as opposed to a liquidator who, by law, MUST represent all the creditors.

What We Do

DPN Help has developed logistically sound, commercial and legal arrangements which can be immediately put in place (especially when clients have less than 21 days after receiving a Director Penalty Notice).

We work with clients to understand the business thoroughly, the environment in which it operates, and potential problems.

We know time is of the essence in these situations. Our friendly team of experts are here to help. We know time is of the essence in these situations. Our friendly team of experts are here to help. Call us today.

Frequently Asked Questions

What Are the Effects of a Voluntary Administration on Accumulated Entitlements?

When considering voluntary administration for your business, it is important to understand what will happen to entitlements accumulated before the administrator’s appointment.

Generally, any unpaid entitlements, such as wages, superannuation and redundancy pay, will form part of a company arrangement or deed of company arrangement (DOCA). If a secured creditor administers the DOCA, they may be given priority in repaying the company’s assets. The DOCA also gives a company breathing space from its creditors and any claims by those creditors against individual directors.

What Are the Benefits of Voluntary Administration?

Voluntary administration can be a useful tool for business owners facing financial distress. The benefits include:

  • Avoiding being put into receivership, which would hand control of the company over to the secured creditor.
  • It gives the business owner and their advisers time to review the business’ situation and prepare a restructuring or sale that is in the best interest of their stakeholders.
  • It provides an alternative to liquidation, which may allow more of the creditors’ debt to be repaid than would otherwise have been possible in either receivership or liquidation.

How Long Is Voluntary Administration?

Voluntary administration is a time-sensitive process that aims to protect the debtors of a business in financial distress. The length of voluntary administration depends on the agreement reached between the creditors, directors, and administrators. Generally speaking, it can take as little as approximately two months. However factors such as the complexity of affairs, negotiations with stakeholders, and legal requirements can affect an entity’s voluntary administration timeline. It is important for insolvent businesses facing financial distress to seek advice early and act promptly to optimise their position and reach an acceptable outcome.