The right insolvency appointment for your company
There are 3 main types of insolvency appointment:
- Voluntary Administrator.
There are of course other options available for other stakeholders such as Receivers and Managers, Controllers, Provisional Liquidators etc.
We are happy to discuss these other types of appointment with you to see if they might be relevant for you.
The main benefits of appointing a Voluntary Administrator are:
- The immediacy of the appointment.
- It can be done upon the Directors holding a Board of Directors Meeting and resolving to do so. That is, it does not require the shareholders to agree to the appointment.
Footnote: A liquidator can also be appointed ‘immediately’ if and only if Directors resolve to appoint a liquidator and shareholders holding more than 95% of the shares in the company resolve to waive the notice period for a meeting of shareholders and resolve to appoint a liquidator. (If less than 95% of shareholders agree to waive the notice period then the requisite 21 day’s notice for a meeting of shareholders is required, thereby preventing the immediate appointment of a liquidator).
- Creditors’ rights are constrained during the period of the Voluntary Administration.
- There are many issues which may need to be considered, the details of which are beyond the scope of this summary. It is best to discuss these issues on a case by case basis if this was a relevant issue for the company.
- It can lead to a Deed of Company Arrangement (DOCA).
- A DOCA is a binding arrangement between the company and its creditors which results in the company NOT entering into liquidation. Typically, a DOCA has to have prospects of achieving a better result for creditors than a liquidation.
A DOCA can have benefits:
- For the future trading of the business as the business can continue to trade and operate without the amount owing to creditors required to be paid ‘in full and when due and payable’.
- This can be of benefit to a number of parties including the employees as well as shareholders.
- For the directors who would not then be subject to the provisions of the Corporations Act etc which are only triggered by the appointment of a liquidator.
The main costs of appointing a Voluntary Administrator are:
- It is likely to have a higher cost than the appointment of a liquidator as there are 2 meetings of creditors and a detailed report needs to be prepared by the Voluntary Administrator for the 2nd meeting of creditors.
- There is no real purpose if it the option of a DOCA is not being considered by the directors.