Financial Difficulties Can Result In Voluntary Administration – What Does That Mean For Your Business


Events of the past year may have hit some businesses harder than others.

With Jobkeeper payments finishing up this month, some companies may have to reconsider their businesses, particularly if they are in distress or having financial difficulties.

If a company is in financial difficulty or expects to be in it in the near future, it must act immediately to put insolvency procedures into place. Serious penalties can be incurred by businesses that fail to take into account their insolvency and continue to trade – directors of businesses that are insolvent can incur personal liability regarding trading while money is owed.

Insolvency procedures that can be adapted by businesses in Australia include voluntary administration, where an insolvent company is placed into the hands of an independent person known as a Voluntary Administrator.

The role of the Voluntary Administrator is to be an independent individual who will investigate the company’s affairs, report to creditors, and recommend to creditors whether the company should enter into a Deed of Company Arrangement (‘DOCA’), Liquidation or be returned to the company’s directors.

The primary benefits of voluntary administration for businesses include:

  • Company creditor claims are frozen, allowing the company the ability to assess its future and financial position
  • Enables the company to continue to trade while it is being assessed as to its viability in the future
  • Is inexpensive to initiate
  • Provides creditors with an independent review of the company and its business viability
  • Provides a mechanism to compromise debts with creditors of the company

The voluntary administration process in Australia typically takes one month to complete and is designed to be a quick process.

A successful VA should result in the proposed DOCA being approved, jobs from the company that is saved as a result, and the debts of the company are compromised.

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