VOLUNTARY ADMINISTRATION

Voluntary Administration is generally initiated by the board of directors and offers a flexible range of outcomes for the company and creditors alike. The voluntary administration regime is designed to create an administration which maximises the chances of a business, or part of a business, continuing in operation, or results in creditors receiving a better return than would result from an immediate liquidation.

​

Appointment of a voluntary administrator is, in the main, limited to companies which are insolvent or experiencing financial difficulty. An appointment by the directors requires a resolution by the board that the company is insolvent or likely to become insolvent. Similarly, an appointment by a liquidator requires the liquidator to form a similar opinion on the company's insolvency. An appointment by a secured creditor can only be made when the Charge is still enforceable.

 

Following his/her appointment, the voluntary administrator takes control of the company's operations and assets. During the period of voluntary administration, generally about 28 days, the voluntary administrator operates the company's business, conducts an investigation into the company's affairs, and works with the directors (or other interested parties) in devising a strategy which will enable a better return to creditors and/or the continuation of the business activity. Any such strategy is then put to creditors as a proposed Deed of Company Arrangement. In the absence of any proposed Deed, the company generally proceeds to liquidation.

 

The advantages of voluntary administrations over other forms of external administrations are that:

 

• an external administrator can be appointed very quickly; 

• the appointment provides a statutory moratorium on existing debts in that it prevents enforcement action by creditors (other than by certain secured creditors under specific circumstances) and the company cannot be wound up either voluntarily or by Court order during the period of voluntary administration unless the Court determines that a winding-up is in the best interest of creditors; 

• control of the company's assets and activities immediately passes to an independent and qualified third party;

• owners or lessors of property owned or used by the company are precluded from recovering their property during the voluntary administration period, hence preserving the business intact and better enabling the sale of the business as a going concern, if appropriate, at which point the necessary adjustments could be made;

• there is no statutory limitation on what type of arrangement can be proposed as a Deed. A proposed Deed may envisage a compromise with creditors, an extension of the moratorium, some combination of both or some completely different reconstruction; and

• it is the creditors who ultimately determine the fate of the company. The voluntary administrator must form an opinion and make a recommendation to creditors as to whether the company should implement a Deed, be wound up, or the administration end. However, it is the creditors who vote on the resolutions and who, by ordinary resolution, determine the future of the company. The resolution of the majority binds all creditors.

 

The success to date of the voluntary administration regime is a testament to the fact that it provides the fastest and most flexible form of external administration and can provide solutions which are not possible or practical under other forms of external administration.