VA offers a strategic pathway to stability and recovery.
This article aims to provide a deep dive into the process and benefits of VA, equipping accountants with the knowledge needed to support their clients effectively.
What is Voluntary Administration?
Voluntary Administration is a legal process that allows insolvent companies to reorganise or restructure under legal protection. It aims to help the company continue operations or provide a better return for creditors than immediate liquidation.
Who Can Initiate Voluntary Administration?
Directors, a liquidator, or a secured creditor with a charge over most of the company’s assets can initiate VA. This decision typically occurs when the company is insolvent or close to insolvency but has a viable future with proper restructuring.
Primary Benefits of Voluntary Administration
Opportunity for Restructuring and Turnaround
Voluntary Administration allows the company to keep operating while an independent administrator restructures its operations and finances. This can save jobs and preserve the business’s value, providing a significant chance for a turnaround.
Protection from Creditors
During the VA process, creditors protect the company from legal actions. This protection offers essential breathing space, stabilising the business and preventing forced shutdowns or asset seizures.
Potential for Improved Financial Outcomes
VA can result in more manageable financial obligations. Restructuring debts and renegotiating terms with creditors enhances the company’s recovery prospects, making a return to profitability more achievable.
The Role and Powers of the Administrator
An administrator is typically an experienced insolvency practitioner, like Salea Advisory, appointed to take control of the company. Their responsibilities include:
- Investigating the company’s affairs.
- Reporting to creditors about the company’s financial situation and prospects.
- Running the company’s operations during the administration period.
- Formulating a plan of action could involve restructuring the company’s debts, renegotiating contracts, or preparing the company for a possible sale.
The administrator’s ultimate goal is to enact a deed of company arrangement (DOCA) agreed upon by the creditors or determine whether liquidation is the more appropriate route.
The Process of Appointment
The company’s directors usually appoint an administrator once they determine it is insolvent or likely to become insolvent.
This critical decision should be made after thorough consultation with knowledgeable professionals like accountants and legal advisors.
Once appointed, the administrator assumes control of the company, relieving the directors from the pressure of creditor negotiations and debt management.
How Accountants Can Guide Clients Through Financial Distress?
As an accountant advising businesses in distress, understanding the process and benefits of Voluntary Administration is essential.
VA can offer businesses a lifeline, allowing them to restructure under professional guidance and potentially return to viability.
At Salea Advisory, we support you as you guide your clients through these challenging decisions. We offer expert advice and empathetic support to help them navigate the complexities of financial distress.
Please contact us for further detailed guidance or to discuss specific cases where Voluntary Administration might be suitable.
Together, we can work towards achieving the best possible outcomes for your clients facing financial difficulties.
