Voluntary administration takes place when a business is insolvent. A company is said to be insolvent when its liabilities exceeds the assets. It refers to the financial distress to offset the debts among other insolvency reasons. A bankrupt company enters into a voluntary administration for some breathing space away from the creditors. The grace period is often one month but may vary depending with the court. The primary purpose of the appointed independent administrator is to salvage the business from closure.
Voluntary Administration Process and Roles of the Administrator
Appointment of the administrator can be done by various approved individuals or bodies. The administration is headed by the appointed insolvent practitioner. He or she becomes the acting chief executive officer during the stipulated period. The board of directors has no power. The appointed administrator focuses on financial analysis and restructuring for the business to be a going concern. They also have a role of providing a better settlement option for the creditors than when the company would have been liquidated. The latter often happens when saving the business from closure is not successful.
Possible Outcomes of Voluntary Administration
There are several possible potential outcomes. Understanding voluntary administration outcomes is essential for the shareholders. The initial purpose of the process is saving the business from closure. The administrator comes up with successful financial strategy that will return the business to its previous financial position. The company is able to offset its debt and the administrator hands over to the management and …Read more