What is the Voluntary Administration Process?
The term voluntary administration is a bit of mix up of the two main rescue insolvency processes which are administration and a company voluntary arrangement. Of course, the directors can opt to appoint administrators voluntarily and they have that power to protect their position.The process is started by filing a notice of intention to appoint administrators at the court.
An administration must have a purpose in that it has to achieve a better result than liquidation. One way that this can be achieved is by exiting the administration via a CVA. This is where the company is put into administration first as a way of protecting the company against legal actions and then the company agrees to pay a proportion of the debts over a few years in a CVA. It is the administrator that proposes the CVA. There is no nominee as the administrator takes that position. If the CVA is accepted then control of the business is handed back to the directors with the administrator as supervisor.
See our flowchart of the whole process.
So what does administration mean?
This is a tool used to protect a business against legal actions if it is insolvent and financially struggling. The company is taken over by appointed administrators to review the business and decide on a restructuring plan. The business can be put on the market to find a potential buyer as a going concern. There is usually a sale of all or parts of the business and assets.
If the previous directors or third party are interested in buying back the business, this can be done in a pre-pack administration deal. The business is bought at the same time as administrators are appointed, resulting in a quick and efficient process.
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Please note that the guide was written pre Covid-19 and there are some likely changes to insolvency rules regarding wrongful trading. Please see this page here.