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During financial trouble, it is important that business leaders recognise their options – with one possibility being Voluntary Administration. Read on to find about what a Voluntary Administration is, how it can help your enterprise and the key details of this process.
As the name suggests, Voluntary Administration is an optional avenue for business leaders who are facing financial difficulty. This means that enterprises with the foresight and knowledge to predict issues may adopt the approach before the situation gets worse.
To maximise the chances of the company continuing, Voluntary Administration is a smart choice. Put simply, Voluntary Administration sees an entity appoint an independent External Administrator who takes full control of the company’s affairs to determine how the business will progress moving forward. If a business leader believes that their business could become insolvent in the near future, the appointment of an administrator is a positive step to make.
In certain circumstances, an administrator may be introduced by a secured creditor, Liquidator or Official Liquidator or Provisional Liquidator.
Of course, the ultimate aim of an administrator is to position the business in a more advantageous position than if the enterprise was placed directly into liquidation.
An administrator enters a business for a particular length of time during Voluntary Administration. This length of time is generally 4 to 5 weeks.
During this time, the administrator has to deal with the company’s affairs, conduct investigations and report their findings to the creditors. Depending on the situation, the administrator can also seek and order for an extension of time from the Court, to ensure they have enough time to assess the business in detail.
Over the course of the administration period, an administrator drafts and circulates open reports about what they have found – both positive and negative. These are discussed as part of meetings with creditors to ensure an open communication channel during the administration.
In fact, there are usually two meetings held during a Voluntary Administration, an initial meeting, and a major final meeting to finalise future plans.
One of the most critical points of a Voluntary Administration is that during the administration period, the business is protected from its financial responsibilities and liabilities. This allows the administrator to work out where the problems lie and report back to creditors without the situation deteriorating.
As such, an administrator will look to:
Once each of these tasks is completed, the administrator will report the findings to the creditors and give a recommendation about the way forward for the business. This could include executing a Deed of Company Arrangement (DOCA), ending the administration or winding up the company.
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