The appointment of a Voluntary Administrator to a company serves as a temporary step, anticipating a prompt evaluation of the company’s financial position and a decision on the subsequent course of action by its creditors. Typically instigated by directors who perceive the company as insolvent or at risk of insolvency, the appointment of a voluntary administrator underscores the acknowledgment of the necessity for an impartial, adequately qualified and experienced individual to assume control of the company’s operations.
Voluntary Administration
The purpose of a Voluntary Administration
The purpose of a voluntary administration is to provide a company with a temporary halt, allowing for the administration of its business, property, and affairs in a manner that:
- Maximises the likelihood of the company’s survival, or at least the continuation of its business; or
- If continuation is not feasible, ensures a more favourable return for the company’s creditors and members compared to an immediate winding up of the company.
While a company is in voluntary administration there is a moratorium or stay on legal actions by unsecured creditors against the company.
Key advantages to the Voluntary Administration process are:
- Maximises the chances of the company or its business continuing in existence;
- Control is transferred to an independent insolvency practitioner;
- The flexibility and ability to reach a variety of outcomes;
- Enforcement action by unsecured creditors is stayed;
- In the absence of the Court ordering an extension to the convening period, the Administration period is generally short.
What is the Voluntary Administration process?
1. Appointment
The voluntary administration begins on the day that a voluntary administrator is appointed to the company.
The voluntary administrator can be appointed by:
- the directors of a company – most common; or
- a secured creditor (the secured creditor must have an enforceable charge on the whole or substantially the whole of the company’s property); or
- a liquidator (or provisional liquidator).
2. The first meeting of creditors
Within eight business days of being appointed, the voluntary administrator must hold the first meeting of creditors and at least five business days’ notice of the meeting must be given to creditors.
At the first meeting, creditors may replace the administrator and/or form a committee of inspection.
3. Investigations and reporting
Once appointed, a voluntary administrator will investigate the affairs of a company and issue a report to creditors which will include a statement setting out an opinion, with reasons, about the alternative options available to creditors and which option the voluntary administrator believes is in the best interest of creditors. See point four below for further information regarding the options available to creditors.
4. The second meeting of creditors
Unless the Court permits an extension of time, the second meeting to decide the company’s future is to be held within twenty-five business days of the appointment or thirty business days if the appointment is around Easter or Christmas.
At least five business days’ notice of the meeting must be provided to creditors.
At the meeting, creditors have the option to decide:
- That the administration come to end and the control of the company return to the directors; or
- To accept a deed of company arrangement (if proposed); or
- That the company be wound up and a liquidator be appointed.