Safeguard Existing Operations with Voluntary Administration

When a company is on the brink of insolvency, multiple stress points occur simultaneously. Understanding the protective measures and strategic options available can significantly influence the next steps and ultimate recovery.

Voluntary Administration (VA) offers crucial interventions to safeguard your business during critical times.

Imagine stepping into a scenario where the reins of your business are temporarily handed over to someone who can steer it back from potential financial collapse. When you enter VA, an appointed administrator assumes control, bringing a fresh perspective to every aspect of your business—from strategic decisions to daily operations.

However, there may be questions about how this impacts a business logistically, both from an employee and employer point of view.

Understanding how VA impacts existing contracts and ongoing operations is crucial for maintaining business continuity and ensuring compliance with legal obligations. It also helps businesses protect their most valuable assets: their people.

Many people are involved in a business’s operations (staff, contractors, suppliers), and they all do their part in the behemoth of business. Therefore, all these components must be considered when entering this process.

At Salea Advisory, we assist business owners in navigating these complexities, ensuring they make informed decisions to safeguard their interests and those of their creditors.

Voluntary Administration’s Effect on Existing Contracts

VA provides a structured pathway to revitalise your business operations. Such flexibility can be a lifeline, allowing you to focus on restructuring efforts without the immediate pressure of financial liabilities.

Real-world examples from Sydney and beyond illustrate how these measures have enabled businesses to reduce costs, maintain essential operations, and return to profitability.

Automatic Stay on Legal Proceedings

One of the immediate effects of entering VA is the moratorium that halts creditors from commencing or continuing legal actions against the company for debts incurred before the administration. This legal stay provides a vital breathing space for businesses to reorganise without the pressure of legal threats, allowing them to focus on a viable restructuring plan.

Continuation or Termination of Contracts

Existing contracts under VA can be subject to different outcomes. While some contracts, like essential service agreements, may continue as usual to maintain business operations, others may be at risk of termination or renegotiation. The administrator may terminate contracts that are not crucial to the core business or are financially burdensome if deemed in the company’s and its creditors’ best interest.

Special Provisions

The Voluntary Administrator can decide whether to honour or terminate contracts. This decision is typically guided by what will most likely aid the business’s recovery or provide the best return to creditors.

Impact on Ongoing Business Operations

The implications of VA extend to employment contracts and interactions with key stakeholders like suppliers and customers. While navigating these changes, preserving jobs and maintaining healthy business relationships are paramount where the intention is for the business to continue into the future, requiring careful negotiation and strategic reassurances.

Understanding these facets of Voluntary Administration could open up new avenues for recovery and growth, ensuring your business survives and emerges stronger.

Management Control

Upon entering VA, the company’s control shifts from its directors to the appointed administrator. This change affects all strategic and operational decisions, including financial management and business strategy.

Operational Restructuring

Administrators may implement restructuring measures such as downsizing, selling off non-core assets, or revising business strategies to improve efficiency and profitability. These changes are designed to realign the business with current market conditions and ensure long-term sustainability.

Employee Contracts

VA can also have significant implications for employment contracts. While efforts are made to preserve employment where possible, some positions may be redundant to streamline operations. The terms and conditions of remaining employees may also be revised to align with the new business strategy.

Supplier and Customer Relations

Maintaining positive relations with suppliers and customers during VA is crucial. Administrators often negotiate to ensure supply chains remain intact and sales continue, which may involve reassurances or renegotiations to maintain confidence among business partners.

Strategies for Business Owners and Creditors

If you believe your business, or a business you are engaged with, is heading towards insolvency, you can try a few strategies.

Preventive Measures

Businesses anticipating potential financial distress should consider proactive measures such as maintaining open lines of communication with creditors, regularly reviewing contract terms, and frequently assessing the business’s financial health.

Negotiating with Administrators

Engaging positively with the administrator can lead to more favourable outcomes for all parties. Business owners should be prepared to negotiate terms and provide the administrator with all necessary information to facilitate effective management during VA.

Legal Rights and Remedies

Both business owners and creditors should be aware of their legal rights and remedies during the VA. This knowledge is crucial for enforcing rights under the VA agreement or challenging decisions that adversely affect creditor recoveries.

Voluntary Administration Impacts On Different Aspects Of A Business

Voluntary Administration presents both challenges and opportunities for distressed businesses. Business owners and creditors can better navigate this complex process by understanding the legal implications and operational impacts.

At Salea Advisory, we specialise in guiding Sydney-based businesses through these transitions, ensuring our clients achieve the best possible outcomes under challenging circumstances.

If your business is facing financial difficulties, contact us today to explore how VA might be the right solution.