When you find your business is in financial distress, seek expert independent advice for clarity on exactly what your predicament is, what your options are and how to maximise the protection of your personal assets.
When to launch the voluntary administration process
Do you have a sound business even though you may be suffering a temporary cash flow issue or a more serious working capital shortage? In this situation, if you have the energy to fight to save your business from insolvency, then a voluntary administration might be for you.
What is voluntary administration?
Voluntary administration followed by a deed of company arrangement is a formal corporate insolvency appointment.
In theory, it is an effective and commercial method to restructure debt in conjunction with your creditors. Turnaround initiatives will be put in place to improve the profitability of your business for all of the stakeholders of the business. It also clears out any personal liability for you for trading while insolvent.
Again, in theory, the administrator takes control and operates the business on behalf of the creditors while the directors put together a proposal for the restructuring of the business. The administrator will comment on the proposal and send it to creditors.
Once creditors agree to that proposal at a meeting, the business will then be subject to a deed of company arrangement while the terms of the proposal are completed. Then the business returns to the owners.
How to write a proposal for the restructuring of the business
The proposal development is based on the current funds available internally. It also includes funds to be sourced externally to both pay creditors X cents in the dollar for their existing debts and for ongoing funding of operations into the future.
The proposal should include both
- a turnaround plan to be implemented to increase sales, cut costs and improve process efficiency; and
- a detailed 3-way budget forecast for at least 13 weeks but more likely 6 months which will show the outcomes from the turnaround plan.
Creditors vote to approve the proposal so it has to be believable, reasonable and has to work for them.
The cost and role of administrators
Having administrators run the business and the administrative process itself is inefficient and massively expensive. The administrators are not likely to have the capability to operate the business and put in place a turnaround plan to improve the business.
An administrator will not provide that clarity and range of insolvency advice you would want. They act for the creditors of the company, not for you.
Taking their advice based on slick advertising, glossy websites and low, low, low fee promises can land you in a worse position and maybe on the wrong side of the law.
Unfortunately, it is a very expensive and unwieldy process because it is a formal insolvency appointment. The administrator is in control of the business and charges very high hourly rates for every hour of work. You are not in control during the business and the administrators act for the creditors, not you.
How to protect your assets and personal interests
Are you contemplating solvency but believe that the business has very good viable prospects? Climb Business acts in the interest of the company directors, not the creditors. Talk to us about an expert, independent assessment with careful and honest consideration of your interests.
If a voluntary administration was the optimal course of action, we would guide you through a 7-step process.
We will :
1] Talk you through the process in detail so you understand the director’s fiduciary duties, and risks and benefits;
2] Highlight both the business and your personal asset and liability position after a voluntary administration;
3] Stage the business for it to be in its best shape for the voluntary administration;
4] Develop and assess the various potential proposals by you to creditors;
5] Develop and implement a customised turnaround plan in the business;
6] Develop detailed 3-way budget forecasts for the next 6 month period; and
7] Negotiate and agree on fixed fees with the administrators and limit the time frame of the process based on statutory timelines.
When you find your business is in financial distress, it’s important to seek expert advice and to choose your advisor very carefully.
Your focus should be to
- seek clarity on precisely what your predicament is
- find options on how you might be able to move out of the cash flow issues
- protect your personal assets
Thanks to ARITA and CPA Australia.
Get help today
Get independent advice from us for the best opportunity to restructure and turn around your business.
Start with a no-obligation chat with a financial councillor about where your business sits right now and how we can plan to turn around your business.
We act for you and minimise the impact on your personal assets. Administrators will act for your creditors, not for you.