Voluntary Administration: What is it and how does the process work?
A voluntary administration is the process of a business or individual voluntarily terminating its management with an administrator. In some cases, this may be to protect creditors, while in other situations, administrators are appointed as a consequence of a liquidation. Voluntary administrators also come into effect when there has been no prior plan put in place for administration and insolvency proceedings. Voluntary administration is a process that takes place when there is no other viable alternative. It is a protective measure granted to businesses to safeguard the interests of creditors and employees. In some types of voluntary administration, the business or individual may have no intention of selling or restructuring the business. In other situations, an administrator is appointed to assist in the sale of the business or its assets to facilitate a restructure.
Voluntary Administration is different to liquidation, as the business is maintained and continues to trade. This have limited powers to trade and can only dispose of assets that are reasonable for the survival of the company. Furthermore, voluntary administrators cannot lay off employees or rescind profitable contracts. In essence, liquidators can be appointed later on if a business is not viable without substantial restructuring or payments are not met.
What Does This Mean for My Debt?
When a business is placed in voluntary administration, there are no immediate changes to the debt or assets of the company. This is due to the fact that administration is a protection for creditors and employees. Both of which are important factors in keeping a business alive and well. Many businesses that enter into voluntary administration are restructured and sold with their financial position improving substantially; therefore, it is in the best interest of creditors to allow administrators to manage the situation until they can be back on their feet financially.
What Happens After the Administration Has Started?
Generally, there are three stages to a voluntary administration: notification, investigation and appointment. This includes the private and official loans of the business as well as employees’ entitlements. As administrators are in charge of liquidating assets throughout their administration, they may decide to sell assets before they get to finalise investigations. The process varies depending on the type of business. The next stage involves investigating: administrators have to ascertain financial information and ascertain the appropriate measures for restructuring. Once this has been completed, an administrator makes a recommendation, from which creditors are likely to vote on. If all creditors agree, the administrator will then be charged with managing the administration and any further actions that may need to be taken.
Appointment takes place after an administrator has been confirmed by all other creditors who have approved the administration plan. Here, creditors vote and an administrator is granted the official appointment. Ultimately, the administrator’s role is to safeguard creditors’ interests. To start with, the administrator is required to seek approval from creditors. The administrator must then agree a restructuring plan that all creditors have considered acceptable. Creditors will have a choice to either accept or reject the finalised plan. If they decide to accept, they must cast a vote that fully supports the administration plan and purchase out all of their debts. The administrator is then officially appointed and takes responsibility over the management of the business.
What Is the Process of Selling a Business Under Voluntary Administration?
The process of selling a business under voluntary administration is usually undertaken when an administrator has been appointed to manage a company. The administrator may put some measures in place to facilitate a sale, such as: requesting information from interested buyers and putting together a report for creditors. However, this decision depends on the type of business involved. Voluntary administration may not be the right choice in all situations, as there can be substantial time delays and costs involved. Voluntary administration does not give administrators the power to make any changes for the betterment of a company, but rather provides protection against creditors and employees. If a director is found guilty of committing fraud, their bond and position will be terminated. If they are considered to have mismanaged a company, they may also be held liable personally and criminally.
What Happens to Directors Who Have Been Suspended? How do They Receive Their Remuneration?
The purpose of voluntary administration is to protect creditors and employees. As a result, directors who have been suspended will receive the same amount of remuneration as before the appointment. This is due to the fact that their services could be useful in facilitating a sale or restructuring of the company. A business may not be in a position to pay off debts and therefore may reach financial hardship. However, if you are an employee of the business or have an outstanding loan with them, you may still be eligible to apply for a personal bank loan. This decision rests on your credit history and ability to repay. All applications are subject to approval by the administration, who may not always be cooperative. If a director is dismissed or deemed to have committed fraud, they will not receive any further payment or remuneration.
What Is the Best Outcome for Me?
Voluntary administration is generally the best option for creditors and directors, as it allows them to restructure the company. This could involve a significant change in terms of staff, business structure and location. If this is successful, it will most likely lead to an increase in revenue and profits. The administrator’s main responsibility is to see that creditors’ interests are protected by avoiding an insolvent liquidation or bankruptcy. An administrator may choose to reject voluntary administration altogether if they feel it will not be beneficial to the overall financial situation of the company. If you are a director of a company, voluntary administration may be the most beneficial option for you. This is because, although you are not legally required to pay the business any further remuneration or wages, you will collect unsecured debts and pay creditors.
Conclusion:
Voluntary administration is designed to protect the business, the shareholders and its creditors. If you are struggling to repay your debts or are interested in selling your business, it would be in your best interest to know about this option. It is important for you to understand that a voluntary administrator does not have the authority to make any changes to your company’s structure, decisions or structure. It can be beneficial for the selling process if there is a change in management and employees due to the loss of key people which may occur during a voluntary administration process.
