It is fair to say that, generally speaking, voluntary administration is not a successful mechanism for restructuring insolvent companies in Australia. Less than one percent end up in a successful compromise with creditors, a Deed of Company Arrangement (‘DOCA’), and continue trading.
Seinfeld is famously referred to as a sitcom about ‘nothing’. Sometimes liquidations and voluntary administrations in Australia lose the plot and directors would be well served to conduct thorough due diligence before appointment and understand the dynamics at play.
When a business is in serious financial trouble, what is the best path ahead? This is, of course, a question for the directors of struggling businesses themselves, but it’s also a question for their lawyers, accountants and creditors.
As with any profession, it is crucial that there is some level of oversight of the actions of insolvency practitioners. This is the only way to ensure that they are living up to their professional and legal standards.
Corporate insolvency practitioners are important gatekeepers in the economy. In Australia, there is a paradox that the system is designed to try to stop the insolvency practitioner from giving meaningful pre-insolvency advice to insolvent businesses. This is a pity because insolvency practitioners are well placed to give pre-insolvency advice.
Voluntary administration is a process where a registered insolvency professional temporarily takes control of a business which is insolvent, or in financial difficulty. 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.
Voluntary administration rarely results in a good outcome for the business – or its creditors. The end result is usually the winding up of the business as a going concern, and ‘next-to-nada’ for the creditors.
The new Coronavirus Economic Response Package Omnibus Act 2020 (the Coronavirus Economic Response Act) has just come into force. This Act contains a range of new measures to support businesses through the Coronavirus/COVID-19 pandemic and its consequences.
Who is Professor Jason Harris? Professor Harris is one of the most knowledgeable insolvency researchers and academics in Australia. He is a full professor and one of the two authors of the principal textbook of Insolvency Law in Australia (Keay’s…