When a company is looking like it is doomed and heading for liquidation, there might still be a way to save the business, which is where voluntary administration comes into play. Of course, there are many reasons why a company could be in trouble, it could be a case of a failing market, as you would see with the film developing industry when digital imaging emerged, or it could be due to inferior products, or even ineffective marketing.
What is Voluntary Administration?
Rather than waiting for inevitable company administration, the business can apply for voluntary administration, which might allow the company to continue trading and possibly enable it to get out of trouble and continue on as a profitable concern. Once voluntary administration is implemented, the chosen administrator would call on the advice of the company directors, while the new administrator implemented their trading processes.
Drafting a Proposal to Company Creditors
While the company is under voluntary administration, the administrator would draft a proposal to the company creditors, outlining methods that would be used to repay the debts. The creditors would meet to decide whether or not to accept the proposal, and should they agree, the company can continue trading, providing that it adheres to the terms and conditions of the proposal.
The Creditors Ultimate Decision
At the end of the day, it is the creditors who will decide the fate of the company. If they agree to accept the terms of the proposal, then the company goes into what is called a ‘Deed of Company Arrangement’, whereby it will do its utmost to fulfill the terms of the proposal. If, on the other hand, the creditors reject the proposal, then the company is put into liquidation.
What Kind of Businesses Does Voluntary Administration Suit?
If a company has considerable assets, both tangible and business-related, then it is more suited to voluntary administration, while a very small business with limited assets might be better suited to another arrangement. If your business in underperforming and you feel that the situation is salvageable, the best thing to do is approach a business administration specialist, who can give you the very best advice on how to proceed.
The Role of the Voluntary Administrator
The person who is appointed as the voluntary administrator would undertake a comprehensive investigation into the company’s affairs, which would enable him to compile a report for the creditors. The company directors would put forward a proposal, and if the voluntary administrator feels that this is in the creditors’ best interests, he would endorse the proposal, especially if he believed that this would offer the creditors a better return than liquidation.
If you would like to talk to company recovery experts about your business, an online search will put you in touch with the right people.