3 Mill or more shares, page-21

Since 1993, directors of Australian companies that become insolvent or appear likely to become insolvent, have been able to appoint an external administrator called a "voluntary administrator". A voluntary administrator may also be appointed by a liquidator, provisional liquidator, or a secured creditor.


What can an administrator do?

The administrator is supposed to oversee a corporate rescue mechanism that gives the company a better chance of surviving or that results in a better return to creditors. That's the theory. In practice, while the entity and even the business may survive, the shareholders have almost invariably lost their investment.

The administrator is empowered to do anything that the company or any of its officers could do previously. He can carry on the business of the company as well as terminate it, or any part of it. His job is to investigate the company’s activities and report to creditors at meetings. The first has to be held within eight business days of being appointed and the second within five to six weeks of being appointed.

A voluntary administrator is not required to report to shareholders on the voluntary administration, but a few of the more enlightened administrators do brief shareholders of listed companies via the ASX Announcements platform.


Creditors make the decisions

The second meeting of creditors is the important meeting. Shareholders do not get to vote. But the creditors then vote to either return control to directors, or place the company in liquidation, or execute aDeed of Company Arrangement, commonly called a DOCA. The DOCA may enable the company to continue trading and offers the prospect of a better return to creditors than liquidation. When the terms of the DOCA are effectuated, the company reverts to the control of its existing directors or new directors. Depending on the outcomes, it may also go straight into liquidation.


Administration never augurs well

In Australia, voluntary administration has never augured well for shareholders; they usually lose all or most of their investment. Creditors via an Administrator (rather than large shareholders via the board) control the company.

Sometimes administrators hold out the prospect of value for shareholders in the corporate shell. But usually this involves only small entities (resuscitated by backing into the corporate shell a new business or another business and raising new capital), and existing shareholdings are savagely diluted, such that an average shareholding is of nominal value only.


Voluntary Administration -

what does it mean to you as a shareholder?

Administration is the beginning of the end for shareholders. If your company has been placed in administration, its business has almost certainly failed and your shares are of little, if any, value. The chances of any significant recovery, even if the entity is re-structured and recapitalised, are remote.

Remember who your directors and executives were and resolve to avoid in future any companies they may be involved in.