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What is Voluntary Administration?

Voluntary Administration is a legal way of giving a business an opportunity to continue to trade when facing insolvency. Trading insolvently – not being able to pay debts as and when they are due – is a serious issue and a breach of Directors’ duties. Directors who recognise their duties are wise to consider Voluntary Administration.

A company in administration is no longer operated by the directors or Chief Executive Officer. Instead it is operated by the Administrator. The voluntary administration now acts as an interim Chief Executive.

For a director it is often easier for an insolvent business to choose Voluntary Administration then be forced into administration by creditors. If you are a creditor dealing with an insolvent company, you can initiate winding up a company.

The Administrator’s responsibility is to act on behalf of the creditors while options are considered. Options include injecting additional funds into the business, selling the business, or breaking up the business into multiple businesses which can be sold. Some parts of the business if still insolvent may be closed. Where these options are not feasible, the entire business may be placed into voluntary liquidation.

Mark Streeter of Streeterlaw Sydney Lawyers can assist directors and creditors in understanding their legal options regarding Insolvent Trading and Voluntary Administration.

See also What is Insolvent Trading?

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