Voluntary Administration is a type of formal insolvency appointment that is used to allow a company breathing space whilst that company’s future is resolved. During the Voluntary Administration period unsecured creditors are restrained from enforcing their claims against the company.
A summary of some of the benefits of the Voluntary Administration process are outlined below:
- A Voluntary Administration is designed to resolve a company’s future quickly.
- It is the best chance a company has to restructure its affairs and continue trading in some form. It is most commonly used where a company is suffering short term cash flow restrictions or one-off financial problems.
- The purpose of a Voluntary Administration is to administer the affairs of the company in a way that results in a better return to creditors than they would have received if the company had instead been placed into liquidation.
- A mechanism for achieving these aims is a Deed of Company Arrangement (DOCA). A DOCA is a formal agreement between the company and it’s creditors to satisfy company debts.
The overall objective of a Voluntary Administration is to provide the company time to restructure its affairs without the ongoing pressure of creditors pursuing payment and potentially enter into Deed of Company Arrangement with its creditors. The Voluntary Administration period runs for 20 business days or 25 business days during the Christmas and Easter period. At the conclusion of the Voluntary Administration period creditors vote on the following options:
- approve a DOCA through which the company will pay all or part of its debts and then be free of those debts
- end the Voluntary Administration and return the company to the directors’ control
- wind up the company and appoint a liquidator. Refer to Creditors Voluntary Liquidation section of this site.
The Voluntary Administration process is best utilised by companies who want to continue trading whilst undertaking a formal restructure including a compromise with its creditors. The process provides the greatest chance for the company’s continued survival than a liquidation.
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For further information on Voluntary Administration contact the team at Rapsey Griffiths for a confidential consultation.