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Voluntary Administration doesn’t have to be the answer if a company is in trouble

03 July 2020
Written by Abigail Curtis
Read Time 2 mins reading time

When a solvent ASX-listed company goes into Voluntary Administration, there are many losers.

Shareholders lose the money they’ve invested, employees their jobs and the board members and executive, who will likely find it hard to regain the trust of investors for future appointments after committing a solvent company to be sold for parts or liquidated, if a recap is not forthcoming.

History demonstrates investors will be highly unlikely to get any return and will have lost everything, even though the company was solvent.

So why do boards take this path?  It’s usually because directors are counselled that they are personally liable for any debts incurred whilst trading insolvent.

While the company might be solvent now, determining the point at which a company becomes insolvent is often difficult, even for seasoned professionals, and may explain why some boards chose to preempt it.

Boards do have other options.  They can rely on the COVID-19 reprieve or, as long as they have met their tax obligations, can qualify for the Safe Harbour defence.

Boards simply need to be able to document their course or courses of action that are reasonably likely to lead to a better outcome for the company than the immediate appointment of an administrator or liquidator to the company.

If the members of a board are unable to make this decision, then the individual board members can resign and make way for a turnaround director/ advisor to replace them.  The moment they do, they are no longer liable for any debts incurred if the company commences trading whilst insolvent.

Skilled turnaround directors and advisers have the following expertise and ability, amongst others, to:

  • Reduce costs and enhance efficiencies through fine tuning processes, analysing data and adapting technologies
  • Review and adapt strategy
  • Prepare capital management plans
  • Determine non- core assets for divestment
  • Sell the business or assets at market value
  • Identify EBITDA accretive acquisitions
  • Negotiate and compromise covenant relief, improved terms, refinancing, and haircuts with lenders
  • Compromise or reschedule with the ATO, landlords, employees and trade creditors
  • Identify investors who will invest in your industry, strategy, and risk profile to raise capital
  • Timing and order of any orderly winding down of surplus corporates within the group
  • Determine whether it is advantageous to remain listed
  • Assist in settling litigations
  • Minimise the risk and/or effect of shareholder class actions and regulatory investigations
  • Communicate fully and with integrity with the investment community.

It is never too late to turnaround.  What is hard and regrettable is making the decision based on incorrect or incomplete advice and considerations.

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Voluntary Administration doesn’t have to be the answer if a company is in trouble

03 July 2020
Written by Abigail Curtis

When a solvent ASX-listed company goes into Voluntary Administration, there are many losers.

Shareholders lose the money they’ve invested, employees their jobs and the board members and executive, who will likely find it hard to regain the trust of investors for future appointments after committing a solvent company to be sold for parts or liquidated, if a recap is not forthcoming.

History demonstrates investors will be highly unlikely to get any return and will have lost everything, even though the company was solvent.

So why do boards take this path?  It’s usually because directors are counselled that they are personally liable for any debts incurred whilst trading insolvent.

While the company might be solvent now, determining the point at which a company becomes insolvent is often difficult, even for seasoned professionals, and may explain why some boards chose to preempt it.

Boards do have other options.  They can rely on the COVID-19 reprieve or, as long as they have met their tax obligations, can qualify for the Safe Harbour defence.

Boards simply need to be able to document their course or courses of action that are reasonably likely to lead to a better outcome for the company than the immediate appointment of an administrator or liquidator to the company.

If the members of a board are unable to make this decision, then the individual board members can resign and make way for a turnaround director/ advisor to replace them.  The moment they do, they are no longer liable for any debts incurred if the company commences trading whilst insolvent.

Skilled turnaround directors and advisers have the following expertise and ability, amongst others, to:

  • Reduce costs and enhance efficiencies through fine tuning processes, analysing data and adapting technologies
  • Review and adapt strategy
  • Prepare capital management plans
  • Determine non- core assets for divestment
  • Sell the business or assets at market value
  • Identify EBITDA accretive acquisitions
  • Negotiate and compromise covenant relief, improved terms, refinancing, and haircuts with lenders
  • Compromise or reschedule with the ATO, landlords, employees and trade creditors
  • Identify investors who will invest in your industry, strategy, and risk profile to raise capital
  • Timing and order of any orderly winding down of surplus corporates within the group
  • Determine whether it is advantageous to remain listed
  • Assist in settling litigations
  • Minimise the risk and/or effect of shareholder class actions and regulatory investigations
  • Communicate fully and with integrity with the investment community.

It is never too late to turnaround.  What is hard and regrettable is making the decision based on incorrect or incomplete advice and considerations.