Voluntary Administration is an informal insolvency procedure often initiated by a collection agency to recover debts from a client. The process is designed to achieve a quick solution regarding the payment of receivables; furthermore, it allows for a short moratorium and provides the debtor with time to decide about the business future without the involvement of the courts. Usually appointed by the creditor’s director, Voluntary Administration means the engagement of an external accountant to monitor and report back on any financial performance of the creditors business. When it comes to settling the agreement, time limits apply like in any legal procedure, and since the first meeting is commonly held by the administrator within eight business days, the proposal is often made within less than 35 days.
The advantages of a Voluntary Administration are as follows:
- An independent insolvency practitioner is appointed who controls the company’s assets and reports to creditors on the financial performance of the company and its prospects for the future
- Administrator has the advantage of seven days rent free period in respect of property owned by others
- Directors have the opportunity to put forward a proposal to ensure the business and the company continues in existence
- The appointment of an Administrator avoids personal liability in respect of unpaid tax liabilities
- The process is relatively short; a standard administration lasts approximately five weeks
- It is a creditor-driven process, and they have the power to decide the future of the company
- Any dividends payable occur faster than if the company was placed into Liquidation
- Creditors and other stakeholders benefit from the company continuing in existence
- In the event a proposal is accepted by creditors, voidable transaction and preferences are not pursued
- Creditors are unable to pursue personal guarantees during the administration process
The disadvantages of a Voluntary Administration are as follows:
- It is a creditor-driven process, and they may reject the proposal being put forward and place the company into Liquidation
- The appointment is advertised
- The director’s conduct and personal financial positions are reported to creditors
- During the administration, directors are no longer in control of the company’s business, property and affairs
Our next blog in this series will discuss the formal options of Liquidation and Receiverships and their advantages as well as disadvantages.
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