Voluntary Administration
PURPOSE
The main purpose of a Voluntary Administration is to provide a company with a viable alternative to winding up where there is scope for restructuring its financial affairs. Sometimes however a Voluntary Administrator may also be considered where there are other concerns such as the maximisation of the asset values of a company in circumstances where any unreasonable delay will result in a significant reduction which is likely to impact on a return to creditors.
BENEFITS
One main advantage of the Voluntary Administration appointment is the expediency with which it can be implemented. The directors are able to effect the appointment of a Voluntary Administrator immediately upon resolving that the company is insolvent or likely to become insolvent.
This method of appointment affords the directors the opportunity to consider making a proposal to creditors dealing with the restructuring plan for the company and an arrangement as to how it plans to repay or compromise its debts.
There is a moratorium on any outstanding debts, except for secured creditors. These measures provide directors with ‘breathing space’ to focus on the most effective means of resolving the company’s financial problems.
Provides an opportunity for the business to continue trading in the future and allows for a greater return to creditors than would otherwise be possible.
Where it may not be viable for the business to continue trading then this form of administration can also enable the assets to be realised in a manner which maximises realisations for creditors.
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