At APL Insolvency we specialize in helping business owners when their company is facing insolvency. We understand both the challenges and responsibilities directors must deal with including the need to take action when their company is having difficulty paying its debts.
We seek to find solutions that allow your company to overcome financial challenges and continue to trade. Our goal is to always help you take a proactive approach that effectively manages the threat of insolvency and provides the best outcome for all stakeholders.
If your company is experiencing financial difficulty, the team at APL is here to help you understand the options that may be available.
One of the available options is a Voluntary Administration (VA). Here is some information about the voluntary administration process to help you understand when a VA might be the best choice.
A VA is an appointment made by the company’s directors when a company is or is about to become insolvent.
A company is considered insolvent if it is unable to pay its debts as and when they fall due. When a company is insolvent, its directors have an obligation to take appropriate action or they run the risk of being exposed to an insolvent trading claim by a liquidator if the company is subsequently wound up. If the directors are unable to deal with the company’s potential insolvency by actions such as increasing revenue or cutting costs, selling assets or raising additional funds, they can voluntarily appoint either an administrator or a liquidator to deal with the company’s insolvency.
While the appointment of a liquidator essentially leads to a formal winding down of the company’s operations, the appointment of an administrator enables the directors to put an offer to the company‘s creditors which if accepted, enables the company to avoid liquidation and the directors to regain control of the business.
In a similar manner to a liquidator, once appointed an administrator in a VA takes control of the company and its assets.
The administrator has the power to sell the company’s business or its assets, continue trading the business, if necessary, as well as collect outstanding debts or other actions to recover funds to repay the company’s creditors. The administrator will notify the company’s creditors and other stakeholders of the administration and will deal with any other matters involving the company’s business.
However, unlike in a liquidation which is essentially a formal winding down of the company’s affairs, a VA allows directors to put an offer to the company’s creditors to repay some or all of the outstanding debt and potentially avoid liquidation.
The administrator prepares a report for the company’s creditors detailing his investigation into the company, its assets and liabilities as well as any other potential recoveries he has identified and providing an estimate of the potential return to creditors in the event of the company’s liquidation. The report also details any offer put forward by the directors and compares the estimated return to creditors of the directors’ proposal to that expected in a liquidation.
At a meeting of creditors held approximately 4 to 5 weeks after the administrator’s appointment, the company’s creditors vote on the directors’ proposal. If the majority of creditors (in both value and number) are in favour of the directors’ proposal, it is accepted and the company avoids liquidation. The directors’ proposal is then implemented in the form of a Deed of Company Arrangement (DOCA).
At that stage, the directors regain control of the business and the administrator becomes the deed administrator responsible for overseeing the DOCA.
In the event that the directors’ proposal is rejected by creditors, the company is placed into liquidation and in most cases, the appointed administrator becomes the liquidator.
In some cases, the directors are unable to put forward a proposal to creditors, leaving liquidation as the only possible outcome.
In a VA, the directors are able to put forward a proposal to the company’s creditors in any form they believe is likely to be acceptable to the creditors.
The directors can propose to contribute a lump sum of funds immediately or at a specified time or can propose to pay a series of instalments over time. They can also propose to contribute the proceeds from the sale of a particular asset or assets or from the recovery of debts or claims. Ultimately, it is up to the creditors to vote to accept or reject any offer.
Under the provisions of the Corporations Act 2001, proposals in a VA also need to ensure that priority debts such as unpaid employee entitlements or superannuation are not compromised without the consent of the priority creditors. Essentially, any proposal needs to be sufficient to ensure that in addition to any amount for unsecured creditors, there are sufficient funds for the priority debts to be paid in full unless a meeting of priority creditors is held in which the priority creditors agree to waive their priority and seek repayment at a later date.
Directors can often increase the prospects of their offer to creditors being accepted by providing appropriate guarantees or security to ensure creditors have confidence the proposal will be complied with.
Importantly, directors should ensure that any offer they propose is within their capacity to deliver as failure to comply with the terms of a DOCA may result in termination of the DOCA and the winding up of the company.
We can help you and your accountant (if appropriate) with the preparation of a proposal for creditors.
When a business is viable and remains potentially profitable but carries debt that makes trading difficult, an ideal solution is a VA. By putting forward a proposal to deal with the old debt, the company can continue forward without that debt and only needing to make payments as required under the DOCA.
A Voluntary Administration (VA) can also be an appropriate solution when a company is insolvent but there is disagreement between shareholders and directors regarding the appropriate action to take or when obtaining shareholder approval for a liquidation may be difficult or impractical. As the appointment is made by a resolution of the company’s directors only, a VA can proceed without a resolution by shareholders provided a majority of directors are in favour.
Contact APL Insolvency today If you are interested in learning more about whether a VA can help your company.
By choosing to proceed with a VA when your company is facing insolvency, you give your company the possibility of dealing with that old debt and continuing to trade.
The best-case scenario is that a VA may enable your business to overcome temporary financial challenges and deal with debt that was making ongoing trading difficult. It may enable your suppliers to keep a customer, your customers to continue to be supplied, your employees to keep their jobs and the company’s directors to focus on the recovery of the company and its future profitability./p>
It can be a win-win scenario in the right circumstances if the process is handled carefully and sensibly.
The worst-case scenario is that your creditors vote against your proposal, and the company is immediately wound up.
In some cases, directors may be in such a position that they really have nothing to lose and everything to gain by opting for VA, as it is the only way to try to save the company from liquidation.
Although a VA will generally cost more than a voluntary liquidation, it is perhaps an investment worth considering if your company is still trading and potentially profitable, as a VA provides the opportunity to offer a viable solution to your company’s creditors and avoid liquidation altogether.
The costs of a VA can vary widely depending on the company, the complexity of the administration and the amount of work involved as administrators’ fees are generally charged at hourly rates based on time spent on the administration.
Administrator’s fees are usually paid out of the funds raised from selling company assets or other recoveries in an administration. When a company has no assets, an upfront fee is usually agreed with the directors to meet the initial costs of the administration.
At APL Insolvency, we discuss your situation to determine how much work is involved to estimate the upfront fee if one is required. In general, directors may pay an upfront fee that ranges from $15k to $20k for a simple VA with a low level of debt to a higher initial fee for more complicated situations when more substantial debts and more work is involved. Remember however, if your company has sufficient assets, you pay no upfront costs.
Note that the upfront fee that we agree with you will usually only cover the initial costs of the administration. However, payment of any administrator’s fees that exceed the initial agreed amount is subject to the availability of further funds in the administration. That is, if the administration fees exceed the initial amount and there are no more funds, the additional time costs get written off. However, if further funds are available, administration fees exceeding the initial amount may be paid subject to obtaining approval from creditors or if necessary, the court.
If your company is experiencing financial difficulties, now is the time to act.
At the first signs of financial stress, it is always best to seek advice from an experienced insolvency practitioner who can advise regarding the available options to help you maintain control of your company and deal with its debt and financial struggles. The sooner you speak to an insolvency expert, the more options may be available to you to help your company survive.
APL Insolvency has over 20+ years of experience in dealing with VAs and other forms of corporate insolvency.
If you are interested in learning more about VAs and how a VA may help your company, contact APL Insolvency today to arrange a free, no-obligation options assessment consultation.