This article will provide the readers with an outline of the voluntary administration process, the rights and powers of Creditors and the responsibilities of the voluntary Administrator.
When the directors of a company have come to the view that the company is likely or has become insolvent, they are able to initiate the process through the engagement of a voluntary administrator.
The main reasons for doing so is to either prevent any inferences of insolvent trading, or to resolve issues relating to creditors. The effects of undergoing this process are:
• 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 used or occupied by the company, can’t recover their property;
• secured creditors can’t enforce their security interest in the company’s assets;
• applications to the court to place the company into liquidation cannot be commenced;
• 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.
Administrator’s role and responsibilities
The voluntary administrator will act independently and take control of the company in order to investigate and report to creditors on the company’s business, property, affairs and financial circumstances, and on the options available to creditors, and will seek to deliver to the creditors a better outcome than if the company was placed straight into liquidation.
The process of doing so requires the administrator to provide to the creditors an opinion on each option which has been put to the creditor and recommend which option is in the best interests of creditors and to report to ASIC on offences committed by people involved with the company.
The process requires that 2 separate meeting of creditors to be held with specified agendas.
The first meeting of creditors must be held within 8 business days of the administrator being appointed, unless the court allows an extension of time.
The second meeting must be held within 25 business days of the appointment (or 30 business days if the appointment is around Christmas or Easter), unless the court allows an extension of time. This second meeting is conducted after the administrator has been able to assess the company’s situation and will provide the creditors with an opportunity to decide on the future of the company. Ordinarily, the administrator will recommend 3 options:
• return the company to the control of the directors;
• accept a deed of company arrangement; or
• put the company into liquidation.
Prior to the first meeting conducted, the administrator must notify creditors in writing, through declarations, information in order for the creditor to be able to assess their independence in order for the creditors to make a decision as to:
i. whether they want to form a committee of inspection, and, if so, who will be on the committee
ii. whether they want the existing voluntary administrator to be removed and replaced by a voluntary administrator of their choice.
A committee of inspection
A committee may be formed to assist, advise, direct and monitors the conduct of the voluntary administration and the administrator. The voluntary administrator must have regard to, but is not always required to comply with, such directions.
Prior to the second meeting the administrator must have provided the creditors with the voluntary administrator’s report and statement, as at this meeting, creditors are given the opportunity to decide the company’s future.
Voluntary administrator’s report
The administrator must provide to the creditors information sufficient to explain the company’s business, property, affairs and financial circumstances, to enable the creditor to make an informed decision about the company’s future.
Ordinarily, the report will also provide the creditors with an analysis of any proposals for the future of the company which will include a comparable estimate of what would be available for creditors in a liquidation.
Voluntary administrator’s statement
This statement will include the administrator’s reasons for each of the options put to the creditors, and which option is regarded by the administrator to be in the best interests of creditors.
The statement must also advise whether there are any voidable transactions (money or property) which may be recoverable in a liquidation.
These options include:
• to end the voluntary administration and return the company to the directors’ control;
• to approve and enter into a deed of company arrangement;
• to wind up the company and appoint a liquidator.
Returning the company to the directors.
This occurs only in rare circumstances, and the directors will be responsible to ensure that the company’s debts are repaid as they fall due.
If the creditors resolve to take this course of action, the administrator will become the liquidator, unless it is resolved that a different liquidator be appointed (at the second meeting).
The liquidation proceeds as a creditors’ voluntary liquidation with any payments of dividends to creditors made in the order set out in the Corporations Act 2001 (Cth).
Generally, the order in which funds are distributed is:
1. costs and expenses of the liquidation, including liquidators’ fees
2. outstanding employee wages and superannuation
3. outstanding employee’s leave of absence (such as unspent annual leave, sick leave or any long service leave entitlements)
4. employee retrenchment pay, and
5. unsecured creditors.
Deed of company arrangement
If the creditors resolve that the company enters into a deed of company arrangement, the company is required to sign the deed within 15 business days of the second creditor’s meeting (subject to court ordering otherwise). If this does not occur, then the company will go into liquidation.
2. 如果财产所有者、出租人和有担保的债权人投了赞成票，契约将会对他们有约束 (有管辖权的法院出具相反的裁定除外)。
We wish to note the following important aspects:
• It will bind all unsecured creditors, even if they voted for or against this proposal.
• It will bind owners of property, lessors to the company and secured creditors, but only if they voted in favour of the deed (this is also subject to a competent court ordering otherwise).
• It will not prevent a creditor from taking action against a director of the company or another person under a personal guarantee.
The deed can specify the consequences of any failures to meet the requirements of the deed and will be monitored by the deed administrator to ensure the company’s compliance, with creditors also being able to play a role in this process.
The deed can also be varied at a later stage.
The terms deed of company arrangement will specify the order in which creditor claims will be paid and may be with the same priority as specified in the Corporations Act 2001 (as in liquidation).
Before any dividend is paid to the creditor, he/she will need to provide the deed administrator with a ‘proof of debt’ in a liquidation. This will ordinarily entail the completion of a form and annexure of relevant evidence.
The question begs to be answered is then who are considered to be creditors to the company in an administration or liquidation. There are generally two categories:
• A secured creditor, a person (legal or natural) who holds a security interest, such as a mortgage, in some or all of the company’s assets, to secure a debt owed by the company. The Personal Property Securities Register (PPSR) registers security over personal property other than land.
• An unsecured creditor, a creditor who does not hold a security interest in the company’s assets.
As apparent, it is prudent for sound legal advice to be obtained prior to any investment or loans are made. This is done to properly secure your interests in either land or personal properties. It is also recommended that legal advice be obtained for the administration process in order to ensure that your rights are preserved and enforced.