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What is voluntary administration?
Voluntary administration (VA) is a type of formal insolvency appointment that allows a company breathing space whilst its future is resolved. VA permits companies to continue trading while undertaking a formal restructure and negotiating compromises with its creditors. It also stops unsecured creditors from enforcing their claims against the company.
In circumstances of insolvency, voluntary administration provides an organisation with breathing space to determine its future while protecting directors or committee members from personal liability for breach of directors’ duties or insolvent trading. While the outcome of voluntary administration for this organisation was positive, if we had been called in earlier, turnaround may have been possible.
Mitch Griffiths (Co-founder / Director)
The committee of an ACNC registered disability support organisation providing services to 400 individuals had concerns about the solvency and ongoing viability of the organisation, personal liability, and expending government funding. We were called in to assess the situation and, subsequently, to act as administrators.
The organisation had losses exceeding $1m that had been incurred in the previous two financial years. Losses of approximately $200k had been incurred in the 2.5 months prior to our appointment. A forecast indicated further losses of $740k would occur in the next financial year, and there was no clear turnaround plan in place.
After assessing the organisation’s current financial situation and the risk it posed to the committee in continuing to trade, we were appointed as administrators. Our role involved:
- Taking control of the organisation for over three months while it continued to trade to ensure its survival or to achieve better returns to creditors
- Exploring options to restructure the business to enable it to trade profitably moving forward
- Seeking expressions of interest (EOI) from third parties to acquire or merge with the business
We were successful in securing a sale/transfer of the majority of the organisation’s business to another organisation. As a result:
- The EOI campaign resulted in an estimated $324k benefit to creditors compared to a shutdown scenario
- 55 employees transitioned to the new organisation allowing for the potential transition/continuation of services to approximately 276 participants/clients
- Employee entitlements were paid in full
- Ordinary unsecured creditors received a return of 42 cents in the dollar
- Employees and clients that didn’t transition to the new structure were helped to secure new employment and/or an alternate provider
- Committee members avoided any risk of personal liability as a result of insolvent trading and breach of directors’ duties