The point of Voluntary Administration
The primary purpose of voluntary administration is to give an insolvent company and its directors the necessary breathing room to figure out the ‘next move’. The process relieves some of the financial pressure and awards more time to enable a company to attempt a compromise or arrangement with its creditors in order to secure its business and jobs while maximising the return to creditors.
When an insolvent company enters voluntary administration:
- Unsecured creditors cannot begin, continue or enforce their claims against the company without the administrator’s consent or the court’s permission;
- Those who either own a property that is leased or occupied by the insolvent company are prevented from automatically recovering their property for a period of time;
- Secured creditors cannot typically enforce their security interest in the company’s assets; and
- A creditor holding a personal guarantee from the company’s director or other person can’t act under the personal guarantee without the court’s consent.
The role of the administrator
The administrator is responsible for investigating and reporting to creditors on the company’s business activity, property, affairs and financial circumstances. Their overall job is to determine which course of action is best for creditors. The options include:
- Ending the voluntary administration and returning the company to the directors’ control;
- Approving a deed of company arrangement through which the company will pay all or part of its debts and then be free of those debts; and
- Winding up the company and appointing a liquidator.
To come to any of these conclusions for the benefit of creditors, the administrator must try to work out the best solution to the company’s problems, assess any proposals put forward by others for the company’s future and compare the possible outcomes of the proposals.
Administrators must act fairly and impartially to provide a company with a chance to trade out of its difficulties at a time when the company is unable to pay its debts.