Voluntary Administration

If a company is having cash flow problems, unable to pay its debts as and when they fall due such as GST, superannuation or creditors then a Director must consider voluntary administration. This enables the company to avoid continuing to incur debts while it is insolvent.

Director’s obligations and liability

When a director is aware that a company is facing insolvency, the Director must act quickly to avoid personal liability for insolvent trading. 

If the company continues to incur debts while the company is insolvent and unable to pay its debts as and when they fall due the director shall be personally liable. In effect the director’s personal assets (house, shares etc) are at risk and could be sold by a liquidator to satisfy the debts of the company.

A director must also consider personal liability under a personal guarantee in circumstances where the company has entered into an agreement and the Director has provided a personal guarantee on the basis that if the company is unable to pay a debt the director will personally satisfy the debt.

When a director fails to prevent insolvent trading he could face:

1. a ban from holding a position of director for up to 10 years;
2. personal liability to repay the debt incurred by the company;
3. being imprisoned for up to five years.

trong>The strategy in Voluntary Administration

The purpose of voluntary administration is to assist the company to get through a difficult period with cash flow by appointing an administrator. An administrator may be in a position to improve the company’s financial position and put it back in a position with a better cash flow by entering into an arrangement with the company creditors.

Advantages of Voluntary Administration

The company can avoid going ‘belly up’. In the event the company is finally wound up the directors may avoid personal liability. 

dvantages of voluntary administration are:

1. Provides an opportunity to the director/s time to improve the business.
2. The administration may improve the profitability of the company.
3. Prevents insolvent trading and personal liability.
4. The company can continue to trade.
5. The director/s avoids personal liability.

Control of a company Under Administration

An administrator takes on the responsibility for trading, decision making and all liabilities incurred during the administration process.

The administrator enters into an arrangement with the creditors for repayment of the debt or part of the debt and Deed of Company Arrangement is executed. Should you be encountering any difficulties of this nature obtain competent legal advice and assistance from LAC Lawyers Sydney and Melbourne.