In brief – Voluntary administration is not the same
The purpose of liquidation is to wind up a company, whereas the
purpose of voluntary administration is to assess the company's
viability, turn its fortunes around if possible and provide a
better return to creditors if not.
What does it mean if a company is in liquidation?
We all know that when a company is in liquidation, you are not
going to be doing much business with them. A company in liquidation
it is in its terminal stage.
If you are a secured creditor, you would be looking to your
securities. If you are an unsecured creditor, you would be looking
to your bottom line, including what, if any, retention of title
clauses or guarantees you might have.
There are of course some exceptions to this.
When a company goes into a members' voluntary
liquidation, it does so because its members want to get
rid of it. It is not an insolvent company. It will be in a position
to pay the debts it has in full within two years.
Insolvent liquidation the most common
When a company goes into an insolvent liquidation, by far the
most encountered form, it is not unreasonable to start hoping there
might be some cents in the dollar being paid back by the liquidator
in perhaps 9 to 12 months' time.
Voluntary administration not always a signal of a company's
Voluntary administration has been around now for 20-odd years.
It is probably not an overstatement to say that most people see it
as another form of liquidation. However, it isn't.
The purpose of voluntary administration is to attempt to turn an
essentially insolvent company around to maximise its chances of
continuing, or if that is not possible, to provide a better return
to creditors (and members) than if there was an immediate
liquidation of the company.
How voluntary administrators are appointed
In order to maximise the return to creditors, parliament has
legislated to make the process of appointing an administrator
reasonably quick and inexpensive.
Generally, a voluntary administrator is appointed to a company
by the directors simply passing a resolution that the company is
insolvent, or likely to become insolvent in the near future, and
that an administrator should be appointed.
The administration itself usually only lasts about five
During that time, the administrator investigates the
company's business and determines whether or not it is in the
best interest of the creditors to allow the company to continue in
some form. This is usually a Deed of Company Arrangement
The other option is for the company to be placed into
When determining if a DOCA is to be terminated, public interest can, and often will, outweigh any benefit to creditors.
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