When you are financially strained, the voluntary administration (VA) process may seem challenging for your business. However, it need not be. Here is a simple explanation of the process in New Zealand.
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Purpose of voluntary administration
Voluntary administration provides some breathing space to a distressed company. The aim is straightforward: make the business survive as much as possible, or, in the event that it cannot, give creditors a better recovery than they would in liquidation.
When your company enters a voluntary administration, a Licensed Insolvency Practitioner intervenes and takes over temporary control. In the process, creditors will not be able to pursue you. This gives the business some room to think about its future.
How the process begins
There are three ways in which you can be put into voluntary administration:
When the administrator is appointed, their powers commence immediately, and your powers as a director cease.
What transpires during voluntary administration
The administrator takes over
The company is now run by the administrator. They can decide on trading, staff, assets, and contracts. Your role changes to informing them and responding to their questions. In other words, assisting them in evaluating the company’s position.
Moratorium period
Creditors are not able to enforce any debt, repossess any property, or initiate legal proceedings. This time-out is one of the largest advantages of voluntary administration.
Initial investigations
The administrator examines your financial documents, debts, business model, and survival chances. They will also consult with you and your advisers to see what went wrong and what can be done.
Procedural timeline
The voluntary administration procedure is unexpectedly fast:
First meeting (within 8 working days)
Creditors assemble to verify the administrator or to substitute them. It is normally a brief and formal meeting.
Report of the administrator (within 25 working days)
The administrator makes a comprehensive report that states:
Watershed meeting
This is the most important decision point. Creditors use ballots to decide on three possible outcomes:
During these weeks, you will be collaborating with the administrator to assist them in developing a realistic proposal.
Creditor rights in process
Although you are in a formal procedure, creditors do not lose their rights. They can:
Secured creditors retain independent rights, such as the right to enforce security, 10 working days after the appointment, at their discretion.
Post-decision process
In case a DOCA is accepted, the administrator transfers control to a deed administrator who will administer the terms in the future. In case of liquidation, the liquidator intervenes. In case control is restored to you, the VA ceases to exist.
Wrapping up
Voluntary administration can give your business a second chance with the right support.
