Shaw Gidley - Insolvency and Reconstruction

The Voluntary Administration or VA as it is often referred to provides sufficient protection and flexibility to restructure a business with the view to save as much of the company's business as possible and achieve a better outcome for the company, its creditors and shareholders than would occur if the company entered directly into liquidation.

This type of administration was introduced to encourage directors of insolvent companies to take early action and is a mechanism for companies facing financial distress to obtain breathing space. It also provides directors with protection from personally guaranteed corporate debts during the VA term.

During the Voluntary Administration process there is a moratorium period of approximately 5 weeks (six weeks at Christmas and Easter) in which creditors, subject to a number of exceptions, are prohibited from taking any action against the company to recover debts, enforce charges or have the company wound up without the consent of the Administrator or the Court.

The Administrator will convene two meetings of creditors during the administration. The first meeting will be held within 8 business days of the Administrator’s appointment at which creditors may vote to replace the Administrator and/or appoint a committee of creditors. The second meeting of creditors will be held within 25 or 30 business days after the Administrator's appointment at which creditors may vote to decide the Company’s future.

The Administrator’s role is to take control of the affairs of the business, investigate the financial affairs of the company, report their findings and recommend to creditors one of the following three courses of action:

1. That the company enter into a Deed of Company Arrangement;

2. That the administration cease (and control of the company be returned to the directors); or

3. That the company be wound up in insolvency.

A Deed of Company Arrangement (DOCA) can best be thought of as a contract between the company and its creditors to allow the company to restructure and trade the company out of its financial problems. Creditors may vote to accept a DOCA put forward by the company and/or its directors as an alternative to liquidation. Often the DOCA will ask creditors to comprimise its claims. The terms of a DOCA can be very flexible; however, it should offer creditors a better return than the alternative of liquidation. Ultimately the creditors must decide whether or not to accept a DOCA that is proposed.

For further information on this type of administration and a timeline of the process, please click here.

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Subject:	Enquiry for Voluntary Administration
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