Voluntary administration is where a company is voluntarily placed in the hands of an independent person (called the administrator) to come up with the best outcome for the company and its creditors. It is usually initiated by the company’s directors or a secured creditor.
What does the administrator do?
The main role of the administrator is to guide the company through the administration process by:
- Reviewing the company’s financial affairs.
- Dealing with creditors.
- Suggesting options and recommending a plan for the company.
What happens in voluntary administration?
During voluntary administration, the administrator takes on the responsibility for all decisions, trading and all liabilities that are incurred during the voluntary administration process.
They must call a meeting within five days with all creditors to brief them regarding the company. At this time, the creditors can choose to maintain the chosen administrator, or they can choose another administrator.
Then, at 28 days, the administrator briefs the creditors and informs them of his/her recommendations and arranges to either enter into agreements with the creditors or to liquidate the company if agreements cannot be met.
What happens to the company during this time?
When a company goes into voluntary administration, everything pauses and allows the company the time to establish a plan to try and save the company from going into liquidation.
During this time:
- Unsecured creditors are blocked from being able to take legal action to recover their debts.
- Usually, secured creditors are also blocked from being able to take legal action to recover their debts but this is not always the case.
- The owners of the company and the landlord are unable to recover their property.
- The court is unable to put the company into liquidation.
What are the benefits of voluntary administration?
There are some benefits for a company in proceeding with voluntary administration:
- It gives the company protection from legal action from its creditors for a certain period of time.
- Allows time to evaluate the company direction.
- If favourable agreements are reached with creditors, it can increase the profitability of the company.
- It prevents insolvent trading.
- The company can continue to trade.
- The directors are not personally liable for the debts of the company during administration.