What is VoluntaryAdministration?
Ifa company becomes insolvent (unable to pay its debts) they may enter voluntaryadministration. The company is then placed in the hands of an independentperson/party. The purpose of voluntary administration is to save the company.
Voluntaryadministration allows creditors an opportunity to negotiate with the companyand seek an independent review of its operations, with the primary goal ofmaintaining the business. Voluntary administration is initiated as a result ofa “resolution by a majority of directors”. However, voluntary administration isseldom a successful process.
Who is thevoluntary administrator?
Theadministrator is the person nominated by the director (or liquidator/securedcreditor) to run the process and take control of the company and itsrestructuring. Under Australian law, an administrator must be a registeredliquidator and is monitored closely by the Australian Securities andInvestments Commission.
Theadministrator will involve the directors and hold meetings with the creditorsthroughout the evaluation process, and potentially draft the Deed of CompanyArrangement (DOCA).
What does thevoluntary administration process involve?
Theinitiation of a voluntary administration will block creditors (in mostcircumstances) from legal or recovery actions against the insolvent company.
Voluntaryadministrations are intended to be quick and efficient – the whole process isintended to be complete within a month. At the end of the investigations, theaim is to place the company into liquidation or finalise a deal with thecreditors – the DOCA.
Theadministrator must report any offences or wrongdoings detected during theirinvestigations. The administrator must also disclose to creditors all thedetails around the company’s insolvency, directors’ actions or wrongdoings,hidden assets and potential legal actions.
Theprimary aim of voluntary administration is to reach a deal or DOCA tofacilitate the business’s continuation or offer creditors compensation betterthan that of a liquidation.
Junichi Horie is a member of the United Nations Commission on International Trade Law(UNCITRAL), as well as the Task Force Member for Corruption in International Arbitration in ICC. The article is published in the June Edition of Swiss Chinese Law Review. Translated by Libing Wen, Edited by Wenxin Yang, Zhaoxia Deng and Tianze Zhang. English version is edited by David Dahlborn