What is a voluntary administration?
Voluntary administration is an insolvency procedure where the directors of a financially troubled company or a secured creditor with a charge over most of the company’s assets appoint an external administrator called a ‘voluntary administrator’.
The role of the voluntary administrator is to investigate the company’s affairs, to report to creditors and to recommend to creditors whether the company should enter into a deed of company arrangement, go into liquidation or be returned to the directors.
A voluntary administrator is usually appointed by a company’s directors, after they decide that the company is insolvent or likely to become insolvent. Less commonly, a voluntary administrator may be appointed by a liquidator, provisional liquidator, or a secured creditor.
The effect of a voluntary administration
The effect of voluntary administration is to provide the company with ‘breathing space’ while the company’s future is resolved. While the company is in voluntary administration:
- Unsecured creditors can’t begin, continue or enforce their claims against the company without the administrator’s consent or the court’s permission
- Owners of property (other than perishable property) used or occupied by the company, or people who lease such property to the company, can’t recover their property
- Except in limited circumstances, secured creditors can’t enforce their charge over company property
- A court application to put the company in liquidation can’t be commenced, and
- A creditor holding a personal guarantee from the company’s director or other person can’t act under the personal guarantee without the court’s consent.
The voluntary administration process and possible outcomes
Once a voluntary administrator is appointed, their first responsibility is to arrange a first meeting of creditors. This must be undertaken within 8 business days of the administrator’s appointment, with 5 business days’ notice to be given to the creditors. At this meeting, the creditors can vote to replace the administrator, or create a committee of creditors.
After the first meeting, the administrator will proceed to investigate the affairs of the company, with a view to reporting back to creditors on the options available to them and the administrator’s recommended approach. This report is tabled at the second meeting of creditors, which must occur within 25 or 30 business days after the appointment of the administrator unless the court grants an extension of time. Again, 5 business days’ notice must be given of the meeting.
At the second meeting, the creditors will vote on the future of the company. They may choose from the following options:
- Return the company to the control of the directors;
- Accept a Deed of Company Arrangement;
- Put the company into liquidation.
If the creditors decide to liquidate the company, then the administrator becomes the liquidator.