Case Study: A Voluntary Administration Success Story

We have had a recent Voluntary Administration success story!!

But first, what is a Voluntary Administration?

A Voluntary Administration is designed to resolve a Company’s future. An independent Registered Liquidator (the Voluntary Administrator) takes full control of the Company’s affairs during the Voluntary Administration period. This allows the Company’s Director or a third party time to find a way, if possible, to save the Company or its business.
If it is not possible for a Director or a third party to come up with a plan to save the Company or its business, the Voluntary Administrator aims to administer the Company’s affairs to obtain a better return (payment) to creditors than if the Company had been immediately wound up (closed down). A mechanism for achieving these aims is a Deed of Company Arrangement.
A Company’s Director usually appoints a Voluntary Administrator after they determine the Company is insolvent or likely to become insolvent. After taking control of the Company, the Voluntary Administrator investigates and reports to creditors about the Company’s business, property, affairs, and financial circumstances. They also report on the following three (3) options available to creditors, being:

1. End a Voluntary Administration and return the Company to the Director’s control; or
2. Approve a Deed of Company Arrangement through which a Company will pay all or part of its debts and then be free of those debts; or
3. Wind up the Company and appoint a Liquidator.

The above options are mutually exclusive meaning that only one option can be taken. The Voluntary Administrator must give an opinion on each option, including an opinion on any Deed of Company Arrangement proposal, and recommend which option is in the best interest of the creditors. In doing so, the Voluntary Administrator tries to:

a) Determine the possible reasons for the Company’s problems
b) Assess any proposals put forward for the Company’s future
c) Compare the possible outcomes of any proposals with the likely outcome in a liquidation

A creditor’s meeting is held about five (5) weeks after the Company goes into Voluntary Administration to decide the Company’s future. In complex administrations, this may be held later if the Court orders.

It is imperative that Directors seek early advice regarding the financial affairs of their Company. Where early financial advice and communication with an insolvency practitioner is obtained, it likely results in more options being available for the Director and the Company to achieve a better outcome for all stakeholders.

Case Study by Daniel Soire

In a recent case where Bruce Gleeson and myself were appointed Voluntary Administrators, we were able to investigate the Company’s financial affairs during the Voluntary Administration period and determine solutions to the Company’s problems which allowed the Company to be restructured and continue to trade. This ultimately resulted in creditors passing a resolution at a meeting to end the Voluntary Administration and return the Company to the Director’s control.

The Company was a not-for-profit organization in the medical industry and in the period eighteen months prior to our appointment had significant turnover in the internal accounting team whereby it also appeared that the Company may not have maintained adequate internal controls and procedures to ensure that invoicing was properly done and collected on a timely basis. The lack of internal procedures resulted in a deterioration of the Company’s management and record keeping.

It became apparent to us during the course of the Voluntary Administration that the Company’s records were not accurate and in particular debtors may not have been recoded correctly which resulted in concerns regarding the accuracy in the company’s financial information and the overall financial position of the Company.

Upon our appointment, we made the decision in consultation with the Company’s directors, to reduce the trading of the Company such that we only maintained minimal staffing with a view to conducting an urgent review of the Company’s financial position and a reconstruction of its financial accounts. We obtained the assistance of the Company’s Directors, accounting staff, and external advisors, in identifying solutions to the Company’s problems such that once the solutions were put in place, the Directors confirmed that they were prepared to resume management of the Company if the Company’s creditors resolved that the Voluntary Administration ends.

Based on our analysis of the Company’s assets and liabilities and reconstructed accounts, we formed the view that there were sufficient assets to meet all known liabilities and our recommendation to creditors was that creditors resolve to end the Voluntary Administration and return the Company to the Directors control. Creditors ultimately resolved at the meeting to end the Voluntary Administration.

The above is an example of a wonderful outcome for all stakeholders and what can be achieved via the Voluntary Administration process where early advice is obtained. We encourage Directors and advisors to obtain early advice regarding the financial affairs of their / their client’s Company which allows for further options to be explored during the Voluntary Administration process.