Voluntary administration and liquidation
17 Feb 2020
- Business Law
Celebrity chef George Calombaris’ restaurant empire has come to a halt as 22 companies in his group of enterprises (the corporate vehicle through which he runs his restaurants) have been put into voluntary administration. All his venues have stopped trading effective immediately.
With the spotlight on voluntary administration, Gene Schirripa, Lawyer at Snedden Hall & Gallop, delves further into this topic and what it means when a business goes into voluntary administration (VA).
What is VA?
VA is a process whereby a company is effectively controlled and administered by a voluntary administrator with a view to satisfying the company’s debts.
VA is generally entered into because the company’s directors have resolved that the company is or likely to become insolvent (as in this case) and they ‘voluntarily’ appoint an administrator who has to be a registered liquidator.
Does this mean the company is finished?
A voluntary administrator will convene two meetings with the company’s creditors. Eventually, the creditors will vote as to whether to come to a formal arrangement to pay debts through a deed of company arrangement (DOCA) OR to place the company into liquidation.
If the company can satisfy its debts by way of a DOCA (often with creditors receiving less than 100 cents in the dollar) the company will be restructured in a bid to revive its financial health. This can happen where, for example, some venues are closed but enough of the business remains to be run viably in its restructured form.
However, liquidation is more common and is a process by which the company’s assets are liquidated to satisfy creditors debts.
Ultimately, creditors decide on the future of the company at the second meeting following consideration of the information presented by the voluntary administrator at the first meeting.
Who gets paid first?
In the case of liquidation, secured creditors are paid first (usually because they have a security, such as a mortgage, that they can cash in to recover their debt, without even having recourse to the liquidator). The liquidator is paid next (should funds be available), followed by unsecured creditors. Of course, this is cascading payment schedule applies provided that funds are available following liquidation of the company’s assets; often, unfortunately, that is not the case.
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