In the complex world of business, financial distress can strike even the most well-managed companies. When faced with such challenges, many business owners and stakeholders may not fully understand the options available to them. One such option is the voluntary administration process in Australia, which can provide a lifeline for businesses struggling with financial pressures. This process offers a structured approach to recapitalising or selling a business, ultimately aiming to achieve the best possible outcome for employees and creditors alike.

What is Voluntary Administration?

Voluntary administration is a formal insolvency procedure designed to help financially troubled companies. When a company enters voluntary administration, an independent administrator is appointed to take control of the business. The primary goal of the administrator is to assess the company’s financial situation and explore options to either save the business or achieve a better return for creditors than would be possible through liquidation.

The Benefits of Voluntary Administration

1. Breathing Space: One of the immediate benefits of voluntary administration is the “breathing space” it provides. During this period, the company is protected from legal actions by creditors, allowing the administrator to develop a plan without the pressure of imminent legal proceedings.
2. Recapitalisation: The administrator can work with stakeholders to develop a Deed of Company Arrangement (DOCA), which outlines how the company’s debts will be restructured and repaid. This can involve recapitalising the business, securing new investment, or renegotiating terms with creditors.
3. Sale of Business: If saving the business is not feasible, the administrator can oversee the sale of the company’s assets. This process aims to maximise the return for creditors and can also provide opportunities for employees to retain their jobs under new ownership.
4. Best Possible Outcome for Employees and Creditors: The voluntary administration process is designed to achieve the best possible outcome for all parties involved. By exploring all available options, the administrator can help ensure that employees are treated fairly and that creditors receive a better return than they would through liquidation.

Common Misconceptions

Despite its potential benefits, voluntary administration is often misunderstood. Here are some common misconceptions:

• “Voluntary administration means the end of the business.” In reality, voluntary administration can provide a pathway to saving the business or achieving a more favourable outcome than liquidation.
• “It’s only for large companies.” Voluntary administration can be used by businesses of all sizes, from small enterprises to large corporations.
• “It’s a sign of failure.” Entering voluntary administration is a proactive step that can demonstrate a commitment to finding a solution and protecting the interests of employees and creditors.

Expert Insights

Our directors and senior staff at Rodgers Reidy always seek to highlight the importance of early intervention; the sooner a company seeks professional advice, the more options are available to achieve a positive outcome. Delaying the decision can limit the chances of a successful turnaround.

Conclusion

Voluntary administration is a valuable tool for businesses facing financial distress. By providing a structured approach to recapitalisation or sale, it offers a way to alleviate financial pressures and achieve the best possible outcome for employees and creditors. Understanding this process and seeking professional advice early can make a significant difference in navigating challenging times and securing a brighter future for the business.

Rodgers Reidy has offices in each State and the Northern Territory, we have specialists that are able to assist any company facing any form of financial distress. Contact you local state or territory office to get advice.