ACL – Avoid a Company Liquidation with a Voluntary Administration?

Did you know you might be able to avoid a Company Liquidation with a Voluntary Administration?

So you might ask what is a Voluntary Administration?

A Voluntary Administration is commenced by the company director appointing a Voluntary Administrator (rather than a liquidator). The Voluntary Administrator will initially assess the financial affairs of the company and will assess whether it can continue to trade.

The Voluntary Administration usually runs for a 30 day period and at the end of the period, creditors will vote on the following 3 options:

  • To return the control of the company back to the director,
  • To enter into a Deed of Company Arrangement (DOCA); or
  • Appoint a liquidator.

While it can be a challenging 30 day period for the Voluntary Administrator to assess the financial position of the company and to prepare a report to creditors (so they will have sufficient information to make an informed decision) the process does have significant advantages which we will discuss in turn below.

1. Can your company continue to trade

When your company enters Voluntary Administration, the voluntary administrator will decide if the company is viable and whether it should continue to trade. This differs from other solutions such as company liquidation, in which the company will most likely cease trading soon after a liquidator is appointed.

2. Prevents creditors from taking legal action

When a company enters into administration, it is offered statutory protection from legal action for the period of the voluntary administration. This will give the director much-needed space to try and determine what the best next course of action such as a Deed of Company Arrangement.

3. Director may avoid some personal liability

If you feel your company may have traded whilst it was insolvent, it is best to propose a Deed of Company Arrangement to reduce the risk of the liquidator making a claim for insolvent trading. If your creditors accept your Deed of Company Arrangement then the company and creditors will be bound by the terms of the DOCA and a claim for insolvent trading will not be possible.

If you failed to pay superannuation or lodge your Business Activity Statements on time then you may still be personally liable for unpaid superannuation and PAYG.

4. May reduce the amount of debt

With a DOCA unsecured creditors (will in most circumstances) accept less than the full face value of their debt, so if the company is viable and can continue to trade into the future, then you may be able to reduce the total debts of the company.

If your company is struggling financially, then take action now, don’t wait until it is too late!

At Australian Company Liquidation, we can also help you with a Voluntary Administration if your company is still trading. We have friendly and professional consultants ready to assist you. Our phone lines are open 24/7 so there will always be someone available to speak to you at any given time, so please call us on 1800 003 883 now.