Debtor Instigated Corporate Insolvency – Voluntary Administration & Informal Arrangements

Where the directors of a company are aware that the company is insolvent – and wish to do something about it, a debtor instigated insolvency administration will arise. We have the skills and experience to provide various strategies to assist and support companies to meet these challenges.

Where the company and its core business is worth saving, the strategies may include Voluntary Administrations or informal arrangements.

We approach each task with a view to finding the best solution for debtors as well as the creditors. This approach has seen this firm become one of Western Australia's leading specialist insolvency firms, being sought by insolvent businesses as well as creditors of those entities.

Voluntary Administration
Provides immediate protection for corporate assets and limits directors exposure to personal liability for insolvent trading. The Voluntary Administration provides for a moratorium on debts while the Administrator reviews the company's position and determines the most appropriate strategies.

Should the Administrator continue to trade on the company's business, the Administrator may be personally liable for any debts incurred in the course of the continuation of business. Of course, the Administrator has some form of protection in that he has a lien over the company's assets to secure those liabilities. The lien is of limited value, however, if the company has minimal assets.

From the voluntary administration stage, the company must progress either to a Deed of Company Arrangement, be released from Administration, or be wound up. The choice is that of the creditors and the decision is a commercial one, based on the offer put to creditors by the company.

A Deed of Company Arrangement can be in various forms - it could encompass some form of trade out, either paying creditors in full or in part, trading on while seeking external funding, a buyout, an orderly realisation of assets, provision of external funds in full and final satisfaction of debts, or some other combination. In considering a proposal for a Deed of Company Arrangement, creditors consider the possible returns from the deed as compared with liquidation.

The administrator of the deed is known as the Deed Administrator.

In rare circumstances, creditors will resolve that the company be released from Administration and revert to its pre-Administration status. That often does not solve the problem, for the company then faces the same issues which forced the directors to appoint an Administrator in the first instance.

Informal Support and Assistance
These strategies, which include workouts and Monitoring processes, may be appropriate where the insolvency is not so serious as to require formal administration. They are most appropriate when the debts are small or there are very few creditors, all of whom are co-operative and supportive.

Because it is informal, costs are generally lower than for formal administrations. Accordingly, they are often seen as advantageous by directors and some creditors. However, this advantage may be offset by the lack of protection of such schemes under the Corporations Law.

Click here for a copy of our article "Voluntary Administration in a Nutshell"