The Full Court held (at [509]): There is a public interest in liquidators bringing recovery actions. The aim is to prevent liquidation. This means that they have a legal duty to act faithfully towards the estate and not put their interests ahead of that duty. The Victorian Supreme Court in ASIC v Planet Platinum and anor [2016] VSC 120 considered this issue. Occurs when the creditors vote in favour of a deed of company arrangement (DOCA) proposal and the business of the company survives to complete its obligations under the DOCA. Directors should consider negotiating payment terms for any existing debts with the Australian Tax Office (ATO), in order to defer insolvency. For example, an insolvency practitioner would probably be unable to properly service two voluntary administrations that are running concurrently. If they can’t grasp the essentials of the business that the directors are trying to save, they may exercise their discretion and stop trading. The settlement in 2005 was less than the amount sought, and was much less than the amount outstanding, including costs orders for prior proceedings. With no DOCA proposal in a form that could be implemented (given the impossibility of satisfying an essential condition), the administrator recommended liquidation and then became the voluntary liquidator of the companies following a vote of the creditors. I published an article on the Ten Network case recently in the Journal of Banking and Finance Law and Practice (‘Unpacking the Ten Network Administration’ (2017) 28(4) JBFLP 343). Phoenix operators have become key referrers to insolvency practitioners. This will determine which assets are at risk in the case of insolvency and possible liquidation. In addition, in that case, the Court found that the purpose of appointment was improper as the aim of the appointment was to halt the appointment of a provisional liquidator and to proceed with company privatisation. For more information, view our presentation on who to avoid during the downward spiral of company insolvency. In addition, directors will not be breaching their duty, even if they are insolvent, if they take out debts in the ordinary course of business, or they are developing a ‘course of action’ for responding to their situation. Change ), You are commenting using your Twitter account. For example, the secured creditor may be aware that a voluntary administrator is likely to be appointed anyway and be worried that the fees and expenses of both the receiver and a voluntary administrator would deplete the company’s asset pool to their disadvantage. Act with full discretion ‘as the company’, Have the authority to approve or reject strategy and financial decisions. Change ), You are commenting using your Facebook account. How do you pick the right voluntary administrator? The Court held (at [615]) that there were not sufficient findings of fact to support determinations that the liquidator breaches ss 181-182. As well as having a low success rate, voluntary administration can have some negative consequences for businesses. Primarily, voluntary liquidators look for ways to increase profitability and allow businesses to continue to trade. It is important to understand the distinction between voluntary administration and a range of other legal concepts that it is sometimes confused with: Voluntary administration, receivership and liquidation are sometimes referred to as different types of ‘external administration’. For the 2017 year, DOCAs made up 28.5% of all insolvency appointments. Ask them to provide references from other directors who engaged them as a voluntary administrator, Ask them for case studies of companies like yours that they have put through DOCA. This safe harbour was introduced in 2017, but not all directors understand its implications well. The voluntary administrator may be removed or replaced: at the first meeting of the creditors by passing a resolution; Sometimes directors neglect to keep their books-up-to-date and this, in itself, can be a significant factor leading to insolvency. Delay creditors: using the process to delay creditor action, Litigation tactic: staying winding up applications or other causes of action, Director’s escape valve: avoiding investigations that may follow a liquidation, Control of the company: resolution of internal disputes, Future complaints: avoid compensating future claimants. A key function of the administrator is to present recommendations regarding the future of your company, and the … Directors Must Assist the Administrator in their Investigation. This professional, the ‘voluntary administrator’, takes away control from the directors, for a period of time, in order to assess the finances and determine the future of the business. An administrator is a fiduciary and, as an officer of the company, is subject to the duties applicable to company officers. The process of voluntary administration is controlled by an independent insolvency practitioner who is appointed by the directors. The voluntary administration regime was introduced into the Corporations Law in 1993 to provide an alternative to liquidation and the immediate closure of insolvent businesses. The key options for removal or replacement lie with creditors, rather than those who appointed the voluntary administrator. We estimate that less than 1 percent of voluntary administrations are ultimately successful. The Administrator is appointed to take control of the company and safeguard the interest of a wide range of stakeholders. The reason is that resistant behaviour is rewarded and there is a lot of “noise” in a voluntary administration that should be ignored by the insolvency practitioner. Directors have a range of duties which, if breached, may result in civil and criminal penalties. What is the purpose of voluntary administration? The differences between distinct insolvency appointments like voluntary administration and receivership are sometimes not understood by the broader public. As the DOCA is the tailored outcome of the voluntary administration process, it is important to look at how common the DOCA outcome is as a proportion of voluntary administration outcomes. How do I know if I should go into voluntary administration? The voluntary administrator isn’t required to keep you updated or notify you about developments. 78 per cent are deregistered within five years. This note will highlight important legal issues discussed in the Full Court’s decision. In many cases, individual directors won’t be able to tell if the company is solvent or insolvent. Not having certain interests in the company, such as being a director, employee or creditor of a certain size (section 448C of the Corporations Act 2001). Typically, directors: Directors can be ‘de jure’ (elected knowingly in accordance with the company constitution and relevant legislation) or ‘de facto’ (acting in the capacity of a director without official appointment). You need to work out accurately what your tax debts are. De facto directors are also sometimes known as ‘shadow directors’. The terms ‘liquidation’ and ‘winding up’, just like the terms ‘bankruptcy’, ‘tax office’ and ‘new season of Married at First Sight’, carry a degree of anxiety. We list some of the relevant considerations below. 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