Ann: Circular to Shareholders, page-29

A company who cannot pay its accounts and is trading insolvent (like I reckon about 90% companies in Aust these days) has a legal obligation to go into ‘Voluntary Administraiton’. This process eliminates the prospect of a major creditor putting the company straight into liquidation. It provides some ‘breathing space’ for the company, through the administrator, to sort itself out and provide a remote possibility of an ultimate continuance of business at a later date i.e., once out of administration.

The company ‘selects’ the administrator to facilitate the ‘administration’ of the company. Once the administrator and company have agreed to terms (administrators estimated fees) and signed the relevant docs, the company cannot be wound up (liquidated) by an independent, massively out of pocket and usually totally pissed off creditor!

The Administrator holds a creditors meeting where the creditors vote to put the company into a “Doca” (Deed of company arrangement) or direct into Liquidation. If voted to go into Liquidation, the Administrator usually becomes the Liquidator (or one of his mates) who basically rakes in as much money as possible for the creditors by selling all company assets. He also has the right to sell the business for whatever he can get for it, assuming that price is more than what he would expect to get in a ‘fire sale’ (auction / tender) of goods, asstes, IP etc.

Under a DOCA arrangement, the administrator has full control of the company’s assets and is responsible for the payment of the company accounts…………… usually from funds remaining in the company.

Of course by the time these legal vultures have picked the guts out of the company, all proceeds are usually absorbed into administrator / liquidator fees. Creditors get ZIP!

If an entity comes knocking on the door of the administrator with a genuine offer (money), that the administrator accepts as being more than what could be raised through a fire sale / auction, he has the right to sell the company to them. Again, any proceeds are more than likely absorbed into the admin / sale associated fees and costs. Creditors get nothing more than a toxic learning experience and a little more wisdom to base their future investments on.

This business is in a critical condition and on life support during Administration. The business dies when it transfers into Liquidation. Either way, it is almost unheard of that minor shareholders / creditors get a whiff of any monetary compensation. Nor do they get solace with directors being penalised to any meaningful extent.

Complaints to ANY regulatory body are a total waste of time……………… they simply DGAF!