What You Need To Know About Voluntary Administration

Since the start of 2020, the global economy has faced several setbacks. Due to the Coronavirus (COVID-19) outbreak, many consumers are holding off on spending. 

This has weighed heavily on businesses, causing them to experience financial difficulties. Whether a business is small or large, those that are unable to pay their debts in a timely manner may go into voluntary administration. 

So, what is voluntary administration? And what happens when a business goes into voluntary administration?

What Is Voluntary Administration?

Voluntary administration can only happen as a result of insolvency. 

The process of voluntary administration involves appointing an administrator – otherwise known as an insolvency practitioner – to conduct an investigation into restructuring the business. 

An administrator can be decided by the company’s directors, the secured creditors or the court.

The purpose of administration is to provide both the company and creditors with a chance to figure out what’s happening within the business. It’s also an opportunity to have an independent expert assess the business as a whole and look into its affairs and finances.

The process of voluntary administration was introduced to give companies dealing with difficult financial situations a chance to restructure and survive. The aim is to give the company a brief period of time to restructure without facing any claims from creditors, landlords, suppliers and other claimants.

The most common suggestions made by a voluntary administrator are: 

• Restructuring
• Selling the business
• Winding up the business

Some Other Concepts You Should Know

These are some other common terms you might hear mentioned during the administration process. We’ve defined them so you know exactly what they mean as you’re exploring your options. 

Receivership 

When your business goes into receivership, it means that a secured creditor has appointed a receiver to enter your business and sell assets so that the creditors can be repaid. 

Bankruptcy 

Bankruptcy occurs when an individual applies for bankruptcy themselves, or is declared bankrupt by a court. 

Winding up 

Winding up (or wound up) conveys the same meaning as liquidation. It means that the business is shutting down for good. 

Who Is Involved In Voluntary Administration?

The voluntary administration process involves various parties with varying interests.

Here’s a breakdown of the parties that are generally involved.

The party	What they’re interested in
The company itself	The company and its directors would generally want to salvage the business and repay their debts
The creditors	The creditors are primarily concerned with being repaid
The administrator/insolvency practitioner	The practitioner is focused on investigating the business and finding out the best possibles ways to move forward

How Can I Prevent My Business From Entering Voluntary Administration?

Whether your company is small or big, it’s always important to keep track of how it’s doing as a whole. 

If you’re experiencing financial difficulties, or if you’re worried your company may soon be faced with voluntary administration, here are some things you can do before you panic about the worst case scenario.

1. Understand Your Company, Market And Industry

It is always wise to keep track of your company’s management, particularly by understanding what’s happening in its planning, strategic, finance and marketing arms. This will give you a full picture of your future growth options. 

On top of that, it is important to understand your market and industry. A company can be doing well financially but can be suddenly impacted by an unexpected event, such as the Coronavirus outbreak. This is why it’s important to stay on top of industry trends and ensure you’re ready to adapt at a faster pace than your competitors.

2. Business Restructuring

As a company, it is good to plan ahead rather than ignoring any issues that may be on the horizon. If your company is facing uncertainty, you may want to look into restructuring your business. However, it is important to seek professional advice before implementing any new changes in your business.

Need Help?

Given that many businesses and individuals have been affected by the Coronavirus pandemic and other unexpected events, making sure your business complies with legal regulations is tricky — particularly when you’re facing so many other stressors at the same time. 

So, when navigating the administration process, it’s best to get legal help to ensure you’re fully aware of your options and the various steps you’ll need to take. 

If you need help with any of the above, we’re here to help. Our experienced lawyers can be reached at [email protected]. 

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