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Voluntary Administration

The New Economic Climate

BUSINESS INSOLVENCY IN A PANDEMIC WORLD

There is a sense of buoyancy in the New Zealand economy. There are predictions of 4 per cent growth in GDP, and even mention of inflation.

It seems that the COVID-19 pandemic has not caused the widespread business failure that was anticipated. However, the news isn’t all good. The buoyancy in the economy has been largely the result of support in the form of government funding. Now that businesses are coming to grips with the pandemic economic climate, we are certain to see the demand for business liquidation increase.

The reality is that many countries – including New Zealand – are awash with debt that can only be dealt with by productivity gains that result in increased taxation revenue, or increased taxation rates that create a capital erosion burden on revenue earned.

However it is sought to be achieved, the economies of the world must somehow balance their books involving debt retirement. When those policies come forward it is inevitable that a correction will take place.

Lowering the economic tide will not necessarily result in broad-based business insolvency, however. External economic circumstances are most likely to impact those companies that have underlying issues that have not been resolved – or perhaps more to the point, are unresolvable. In other words, if a business had issues before the pandemic, those issues may have hastened the business’s inevitable end.

It’s also worth considering that there are issues within certain sectors that may take down otherwise robust companies. While many will adapt, some companies’ business models will be so entrenched that they cannot readjust to the new business environment unless demand is restored. To give one example, consider how a well-established supply chain provider in the food and beverage industry will be seriously impacted by the pandemic. Sector-based demand shifts will see companies able to survive only if demand returns before they run out of capital resources.

Insolvency, however, is normally associated with the shortcomings of a company’s management. The environment within which it trades is relevant; but more important are the internal dynamics. How well does the management understand critical accounting processes? Has record-keeping been subordinated to the demand of operations? Are costings analysis predicting a positive outcome? Has the company invested its scarce resource in a manner that maximises returns? Are human resources managed so that the ideal outcome of optimisation and equity are achieved? These questions – and many more that relate to the allocation of capital resource for the purpose of creating surpluses – must be considered.

Can a better outcome be achieved?

The internal dynamics of a business can certainly change. That does not mean that structural alterations can be made with ease – for example, moving away from a long-term leasehold interest – but the approach taken to a company’s issues can change as quickly as the adoption of an alternative frame of thinking by management.

The reality is that the creation of wealth is a function of applying human ingenuity to the allocation of capital resources for the purpose of earning revenue at a level greater than expenses caused. Within this triangle, the only alterable element is human ingenuity and how that is applied to use resources to achieve the purpose.

Bridging the abridgement

Government recognises that company failure takes down the capital invested and impacts on the lives of people associated with the company, including creditors.

Rehabilitation is a much better outcome for a business than failure. There is a legal process designed specifically to help businesses get back on their feet. Voluntary administration can help a struggling company transition back to full health. This is not an easy process; it requires a strong commitment from all parties involved.

To find out more about company liquidation or voluntary administration, visit BWA Insolvency or get in touch to discuss how we can help you and your business.

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Voluntary Administration

How VA Helps Companies Get Back On Their Feet

HOW VOLUNTARY ADMINISTRATION HELPS COMPANIES GET BACK ON THEIR FEET

Voluntary Administration is a process that helps businesses facing insolvency get back on their feet. Insolvency follows a well-worn pattern of value depreciation. It starts with congestion that results in inefficiency and illiquidity. When these dynamics remain unchecked, they compound and cause new cycles of congestion, inefficiency and illiquidity. Like any ill health, if not corrected the condition worsens to a point where the company cannot be saved. 

Voluntary Administration aims to stop this trend and define a new playbook for the company. It gives the failing company the best possible chance to continue to exist, and is designed to be an alternative to liquidation.

How Voluntary Administration works

When the Voluntary Administration (VA) progress begins, the effects are immediate. The first main event is that most creditors are required to stand back for a period of time so that a plan for recovery can be developed. This lifts a weight off the shoulders of the directors – even if only for a short time – and gives them a chance to consider their options. This is far more productive than constantly fighting for survival, issue by issue. 

VA is an inclusive approach. It recognises that preserving the business as a going concern provides a better chance for recovery than breaking it apart; and working with directors is likely to produce a much better outcome than grinding down upon them. The directors’ efforts to save the business will be matched by creditors if the right plan is put before them.

VA law defines what must be done and when it should occur. Not only does the scheme require everything to be done within time deadlines, it also makes sure that no one is allowed to overreach their rights. Its end goal is the continuation of the business by making sure that, wherever possible, value is preserved and viability is recreated. All of this is done in an environment of full disclosure, so that everyone who has a right in the business gets their say.

All this sounds too good to be true! How could it be so easy to achieve such a result? In reality it is not easy. Claimants in the company are likely to lose money, which will result in disharmony and tension that may show up as opposition to the recovery plan. But that does not alter the validity of the process; opposing dynamics are an inevitable part of it. Regardless of the consequences, the company must confront its situation head-on if it is to have any chance of restoring itself back to good health. At the very least, VA will offer relief from overwhelming creditor demands and operational shortcomings so that clear heads can consider alternatives.

VA brings a much-needed structure to the company’s affairs. Under VA, set processes and rules must be followed, which force claimants and shareholders to engage in the affairs of the company as if Voluntary Administration has brought about an abrupt end to the company’s life. And in a way it has – if it is agreed that there is no going back to the way things were. It is an opportunity to define a new future for the business, one that is intended to take all that is good, leave all that is destructive and meet the company’s obligations to its creditors from the results of its new activity. When that is achieved, the company is returned back to the directors, leaving them once again in charge of the company’s destiny.

VA and a company’s employees

The law recognises that the business is built on the backs of its employees and that they should rank as a special class during the VA process. There may still be a requirement for restructuring which could impact on employees; but in those circumstances they will be preferential creditors. The end goal of VA is the continuation of the business by making sure that value is preserved – and much of a business’s value is in its employees. 

The four pillars of Voluntary Administration

The legal framework of VA comprises four pillars. These provide both freedom and barriers: freedom to create a remedial plan to put right the current circumstances, but barriers to ensure submissions are made within time limits and that rights are not exercised where they do not exist. These pillars are the cornerstone of the VA programme and create the potential for a better outcome than immediate liquidation.

The first pillar: The demands of creditors, with some exceptions, are frozen for at least 25 working days. It can be extended beyond this period. The moratorium provides vital breathing space to the administrator and the directors to assess the affairs of the company and come up with a business recovery plan. 

The second pillar: Allow the company’s creditors to have their say. This is done through meetings, which have prescribed outcomes and must be held at certain times. Although the VA programme is inclusive of all parties – creditors and shareholders – it is the creditors who decide the future of the company. Discussion of the issues that have caused the insolvency cannot be avoided. But this is a starting point for recovery – the business cannot get out of the woods unless it knows where it is within them. In addition, lack of knowledge is typically a frustration for creditors. VA  deals with that by ensuring that all the facts are on the table. 

The third pillar: Cash flow will immediately be improved. This important pillar ensures that obligations to creditors will be suspended but payments will still be received from customers. Supply lines that may have been restricted because of the insolvency are normally reopened, as suppliers can look to the administrator personally for settlement. New administrator accounts will be opened to provide the goods and services that are necessary for the recovery plan.

The fourth pillar: Guarantors are protected from action against them during the VA process. Creditors are not able to call upon guarantors as this would frustrate the recovery process. The shareholder who has put their house on the line to fund the company cannot diligently work towards the revival of the business if at the same time their home is at risk. 

Voluntary Administration law recognises that commerce is undertaken in a battleground of competing interests. Costs are driven up by supply-side providers and when sales are made, they are won from a competitor. There is economic and legal tension in every aspect of business, and that sometimes results in business failure. 

What you can expect from us

BWA is a team of five highly qualified and competent practitioners. The practice is led by Bryan Williams, a registered insolvency practitioner who has been active in the field for over 25 years. We pride ourselves on our results because results are the most important thing. The following attributes are what you can expect from us when appointed. 

  • Engagement: Voluntary Administration is immediate and demanding. We know the requirements and will meet these on time and as fully expected. We know the work is hard and demanding, and we draw on every ounce of skill and experience that we have to deal with the many requirements of the VA process. When we accept the appointment, we are in the game. 
  • Transparency: There is no substitute for honest and accurate declaration. All affected parties are entitled to know the situation and how it affects them. Trust and confidence are vital during this challenging process, and these will not happen without transparency.
  • Consideration: The company’s claimants will be considered in accordance with their rights. The ultimate end goal of Voluntary Administration is the survival of the business and the redemption of creditor obligations as a result. Parties may seek to cut across that outcome – these must be attended to as best they can, to ensure the big-picture objectives are met wherever possible.
  • Deliberation: Decisions must be made in a timely way. The criteria for any decision will reflect the best interests for the survival of the business, provided that what is best for the business is also the best outcome for the creditors.
  • Compliance: We know the law and will strictly adhere to it. We have the view that the law is enabling, not restricting. The law provides the scope for survival opportunities to be considered.
  • Empathy: Insolvency is a difficult world. Losses are likely to be experienced and attitudes are sometimes expressed in a harsh manner. Although there are tough decisions to make, we have a heart and recognise the impact that insolvency can bring. 

 

Before accepting any appointment, we want to know the objectives of the engagement so that we can provide input into how realistic they are. Not all objectives can be met. We will be honest, so that no unrealistic expectations are carried forward. 

Of vital importance is our commitment. We will be in the trenches with the directors to achieve what might be one of the most difficult things they will ever face. We take this responsibility seriously and with wholehearted adherence to the requirements of Voluntary Administration. 

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Voluntary Administration

Seeing the light in a failed business rescue plan

Seeing the light in a failed business rescue plan

When the waves keep coming, the only way to overcome their weight and turbulence is to learn how to surf. Insolvency is very much like the breaking surf, bringing noise, confusion and murkiness as claims from creditors emerge and start to close in on the business. Directors will often meet this stressful circumstance with ploy and shrewdness thinking that survival is best achieved by avoiding the very issues that should be confronted head on.

Learning to surf the dynamics of a failing business is likely to be new to the owner. Insolvency is not something encountered frequently enough for the directors to become skilled in this field. Nor is failure dwelled upon when starting out and will be the last thing that is thought of when striving to succeed in the business. The dynamics of insolvency will be a new encounter for the directors and potentially a painful one as the circumstances take on a personal slant.

The effect of insolvency is not confined to the company – both the turbulence, and the economic consequence, hits both the company and its creditors. The other side may present acrimoniously because someone else’s shortcomings have caused damage to them. Here is an important point though – the business in trouble may be failing and that means that management has failed but it does not mean that management is a failure!

To avoid that failure label, directors must conduct their business affairs in a different way than has occurred up to this point. It is highly likely after all, that it is the failing of management that is the probable cause of the condition. To have any credibility, the change in approach must demonstrate that the company’s creditors are at the heart of its future activity.

It is all very well to have such a plan, but unless there are avenues for its implementation it will not see the light of day. Intention is one thing but being able to perform is quite another. The solution to be found is how management makes such a momentous shift in its approach and have that accepted by the creditors. The reality is that there is no model answer for this situation. In this swirl of activity, the directors will need to find a way of convincing creditors that their plan for survival is better than the creditors taking action themselves. This will require the directors to submit a plan born out of one eye on the past to ensure mistakes are not repeated, and the other on the future that shows modest and credible results. The important thing is that the company is not dead yet and until it is, there is potential for its revival – the alternative is that the company becomes just another statistic.

Undying commitment for survival by itself will not be sufficient though. There must be commitment in abundance but without staircasing through some tangible objectives, commitment alone will fail for the want of achieving benchmark outcomes. Solid stepping stones need to be found so that trust and confidence can be rebuilt, and rehabilitation can become a reality.

Firstly – get to know exactly where you are in the woods. Business is about wealth creation and this is measured in money terms. Ask for assistance to prepare a statement of position – it should not take more than an hour using your assessment of value. Estimations are near enough at this stage – you just want to know roughly your whereabouts so that you can prepare a course of action showing the way out.

Secondly, define what value your business can provide. Why should customers come to you and how valuable is the good or service to them. Success in business is not a right of existence, it is a consequence of the value that is transferred to customers that are willing to engage with the business. Pulling the business out of a hole, in the long term, is about making sustainable profits from providing value. If there is no value to provide, or the costs of providing it are greater than the profit to be earned, then perhaps there is not a business to save.

Thirdly, honestly describe what has gone wrong. Get down to the nitty gritty of the matter and answer up against the issues. There is one common element that is critical to comprehend and factor into the analysis – management did not see the insolvency outcome or did not respond to it in a way to defeat it when it became apparent. Management should not engage in some self-effacing introspection and retort that they are to blame for everything that lives and breathes in the organisation – rather, management needs to understand what other decisions might have been made so that the outcome being confronted now, might have been different. Nothing that has happened can be changed, but if the cause of it is understood it is less likely to be repeated.

Fourthly, it is imperative that management plans its activity. Plans themselves are nothing but the process of planning is everything. The completion of an excel workbook full of numbers and formulas may look impressive but unless those numbers accurately represent an actual occurrence in the business, they are just numbers on the page. Plan honestly and diligently – do not be fooled by the promises of bells and whistles programs, the answers are not in IT functionality but in the thinking persons’ head that is seriously concerned about the survival of the business. Plan the future with intuition and foresight by developing a big picture view made up of moderate action steps, and then implement the plan with confidence.

Fifthly and lastly, get help. The business is in a hole and management will be held accountable for that outcome. There may be reluctance to engage someone, but the business will not only be advantaged by fresh eyes but will benefit from having an independent person between the company and its creditors.

Businesses fail every day. The important point though is whether or not all reasonable chances of recovery were considered. Voluntary Administration is the legal regime designed specifically to see whether or not the business can continue in existence. Its implementation is intended to be an alternative to liquidation.

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The Road Ahead

The year that was

The year that was

The big picture
2020 was a memorable year for many reasons to people in business. The impact of Covid-19 is certain to be at the top of the list.

Attempts to beat the virus prevented the most fundamental requirement of commerce – people selling to people. Here in New Zealand, our elected officials contended that defeating the virus and preserving the economy were achieved with the same strategy – go hard and go early. Of course, it makes sense that economic confidence will be restored when what caused it – demand turned off by the lockdown – is turned back on again. It is hard to argue against the strategy adopted, and government have been applauded internationally because of it.

There will be latent consequences though. One of the ways the government responded to the pandemic was by providing business subsidies to offset the economic impact of being in lockdown.

These subsidies were necessary to preserve the form and structure of business during the time that it could not fulfil its primary purpose – to trade.

The problem though is that subsidies produce inefficiencies and allow companies that are not viable to continue to trade as well as to potentially have other companies. In normal situations the market economy rewards businesses that produce goods or services profitably and sacrifices companies that cannot. This natural selection process is avoided when subsidies are available.

As the graph above shows – in calendar year 2020, formal states of insolvency were just 80% of 2019. When considered against earlier years this is a statistical anomaly and likely to result in a flurry of insolvencies when subsidies end. The same trend has been reported in both Australia and America.

There is much discussion currently about the next wave of insolvencies and the impact it will have on the broader economy. In my view, companies that have survived because subsidies have hidden pre-Covid underlying conditions, will find it very difficult to continue. The companies that were viable pre-Covid but have been impacted by demand shifts will either adapt or elect to stop trading before insolvency hits. The tourism sector is an example of this.


Where have the insolvencies come from?
Not surprisingly, the largest volume of insolvencies for 2020 happened in Auckland. The volume might be slightly disproportionate to the national population because Auckland businesspeople may be slightly less risk averse.

The table to the right shows the types of businesses that experienced insolvency in 2020. Construction is the leader with three sectors – business services, food and beverage, and property and real estate – coming in second.

Surprisingly, tourism has not featured as strongly as might be expected, given the lockdown and border restrictions.

It is likely that many of New Zealand’s tourist businesses were viable and solvent before Covid-19, and when border restrictions occurred the businesses either realigned their delivery to a new demand or ceased to trade.

Voluntary Administration can alter the course of insolvency
For many, insolvency is likely to be a once-in-a-lifetime experience. Events surrounding insolvency can be harsh and at times overwhelming. Creditors that the company has previously dealt with – in some instances for many years – suddenly find license to express their views about the company’s financial affairs in a direct manner and often without filter.

The appointment of an administrator – the first step of the Voluntary Administration process – brings much-needed independence and objectivity to the situation. A competent administrator is key to facilitating good discussions and guiding the parties towards solutions for the issues at hand.

Appointing an administrator stops the grab-and-run mindset that is so often a part of liquidations and lays out a path for creditors to express their views and consider the options available. No one party is entitled to act in a wholly self-interest way during this process. All the affected parties will be required to consider their options in the context of what is best for the company – or to abort and vote in support of liquidation.

There is no easy route in insolvency. Creditors will suddenly become aware that their claim in the company may not be as valuable as first thought. At the same time, shareholders will need to reconcile themselves to the reality that their time and capital may well be lost.

Regardless of the outcome, it makes sense to have breathing space between the time that help is required and the time that the final decision is made about the business’s future. Voluntary Administration can provide this.

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The Road Ahead

Business debt hibernation is here

Business debt hibernation is here

The Business Debt Hibernation scheme is now law, bringing help to those businesses that are vulnerable but still viable in these difficult economic times.

As of 16 May 2020, directors can begin a process that will allow their debts to be deferred for up to six months. There are rules to follow and qualifications that will limit some parties’ involvement. But the basic intent of the law will be achieved, as it provides some breathing space for companies that have been affected by COVID-19.

Although the Business Debt Hibernation scheme is proposed as a self-help system, it is unlikely to be easy to implement. One challenge facing directors will be their lack of familiarity with insolvency law. Another will be the inevitable human dynamics of the scheme. While the applicant has the advantage of debt deferral, the creditor has the corresponding disadvantage of waiting for debt to be paid.

There are 95 insolvency appointments for the month of May; 45% of these are in Auckland. Although Auckland continues to be represented disproportionately in insolvency numbers, it should be noted that many appointments are by the same shareholders. There can often be two or three liquidations within a group of companies.

The weekly count of insolvency appointments has gone up from 29 for the week ending 10 May, to 33 for the week ending 17 May. Although this is an increase, it is not a notable one. It is consistent with directors returning to their business issues rather than a prediction of the future.

The business services sector continues to lead insolvency appointments for the year beginning 1 April 2020 with 31 appointments. It is very likely that the providers of business services do not have significant business assets – so when insolvency occurs, ending the business by liquidation becomes the convenient option.

Close second is construction, with 23 companies in the sector facing a formal state of insolvency. Thirteen are in Auckland and Northland, six are in Canterbury and Marlborough, two in Waikato and one each in Wellington and Bay of Plenty.

Budget 2020 did not produce any real surprises. The government clearly showed it intends to help business as much as possible so the economy can become active again.

Regards

Bryan Williams (Accredited Insolvency Practitioner)
BWA Insolvency Limited

The place you go when Voluntary Administration can be used to help rebuild your business

www.bwainsolvency.co.nz

Categories
The Road Ahead

Week one of a new world

Week one of a new world

This is a very big week for New Zealand companies. The ability to start doing business again – with some qualifications – is now a certainty. For many, this will be celebrated as a victory over a pervasive enemy. Business is ready to get back to work – and it needs to, so earnings can be created and company overheads met.

For others though, the prospect may not be so attractive. Faced with altered demand, sales may not return as they were before the crisis began. Operating overhead costs will need to be met from sources other than sales revenue. Some businesses will be facing the challenging question of what to do now. What was normal is no longer, with the problem made worse by the absence of any clear view of how business will develop in the future. There is no easy solution to this situation.

The economic effects of COVID-19 are already starting to show. Between 3 May and 10 May there was a 61% increase in insolvency appointments – made up of 28 liquidations and one receivership. There were no appointments made for Voluntary Administration. It is likely though, that as directors return to work and re-evaluate the survival of their company, they will consider the government’s initiatives to restore business health. This will include the Business Debt Hibernation scheme when it becomes law.

The heat map shows all insolvency appointments for the month of May so far. This reveals Auckland to be slightly over-represented, having 44% of the appointments made but just 35% of the total population. The remaining 56% of insolvency appointments are widely spread across the country.

Since 1 April 2020 there have been 125 appointments across 26 business sectors. Business services represent 19% of the total, with Construction at 14%. Retail makes up 9% of the total.

This week the Minister of Finance presents Budget 2020 to New Zealand, with the effects of the crisis expected to be a central issue. The Minister has the onerous task of finding the right balance between heating up the economy and containing debt. Unfortunately, not all business sectors will get what may be required, and hardship for some companies in those sectors will be the result.

Regards

Bryan Williams (Accredited Insolvency Practitioner)
BWA Insolvency Limited

The place you go when Voluntary Administration will help rebuild your business future

www.bwainsolvency.co.nz

Categories
The Road Ahead

Statistics don’t tell the story yet

Statistics don’t tell the story yet

The three relevant metrics for understanding the impact on businesses are – how many have become the victim of the virus, where did they operate and what did they do. For the month of April, 52% of the insolvencies were in Auckland. This is disproportionate to the population of Auckland – which is approximately 35% of New Zealand’s total population. Eight of the 46 insolvencies in Auckland were Receiverships. This is also disproportionate, when compared to insolvencies in other provinces. However, with such a narrow sample, it is not easy to reach any firm conclusions. It is arguable though, that Aucklanders are less risk averse than in other provinces.

The weekly statistic shows just 18 insolvencies for the week ending 3 May 2020. Liquidations were the most dominant at 87%, Receiverships at 9% and Voluntary Administration at 4%. Although it looks like the trend for insolvencies is declining, it is likely that this is simply the calm before the storm. It is not surprising that there are lower volumes given the lockdown and there being no pressing need to make any decisions until we are at Level 2. There will always be a lower proportion of Voluntary Administration over Liquidations given the propensity for Directors to shy away from passing over the management of the company to an Administrator. That resistance though, inevitably exposes the economically vulnerable company to liquidation when it encounters circumstances that it cannot overcome.

As to the activities of the insolvent companies, Building Services and Construction have been hit the worst with 32% of the 88 insolvencies in April being in these two categories. Not surprisingly, retail and wholesale trade together with food and beverage make up 30% of the total. It seems odd that Finance and Insurance are at 6% but perhaps that reflects the growth of financial providers that have become an alternative to traditional capital raising sources over recent years.

Given the low sample size there is no pattern yet that tells a story directly relating to COVID-19 but I suspect that is on its way.

Regards

Bryan Williams (Accredited Insolvency Practitioner)
BWA Insolvency Limited

The place you go when Voluntary Administration will help rebuild your business future

www.bwainsolvency.co.nz

Categories
The Road Ahead

Key business statistics

Key business statistics

Business failure is an accepted consequence of entrepreneurs being active. It is also normal for failures to occur during a recession, when the economy contracts.

But what of an abnormal event such as the COVID-19 crisis? What will the future look like? How can viable businesses defeat the effects of the pandemic?

These are far from normal times. Commentators predict a frightening level of business failure because of the pandemic. If that does occur, there will be many job losses as well as a vast write-down of investment capital.

Most New Zealanders have engaged with the daily dose of statistics that the government has so freely shared with us. We’ve absorbed them, listened to the official narrative and been able to reach our own conclusions from the information provided. The government’s objective of ridding New Zealand of the virus is clear and they have allowed us to see what they see, which has brought almost everyone along with them.

Tracking companies that enter a formal state of insolvency is essential if we are to adopt a similar objective. How many companies have failed, where they did business and what they did is powerful information. Survivors want to see what is happening in their industry, investors need to gauge the value of their inputs and service providers want to assess their risk.

A society cannot stop business failure. New successes are the lifeblood of growth, and failure is an inherent element of striving to achieve. But we can work to stop the liquidation of companies that are victims of this crisis and knowing the landscape is essential if that is to be achieved.

Business success is based in the exchange of value at a level that achieves viability. It is hard enough to succeed in normal circumstances but when an all-encompassing event like COVID-19 depresses all activity, knowing its effect is vital if it is to be beaten.

BWA wants your business to make it through these difficult times and to flourish again. To help with that, be as informed as possible by signing up to our newsletter and receiving weekly updates on important statistical metrics and valuable business insights in respect of them.

Stay positive, stay safe, and don’t hesitate to reach out to us if you need any more information about any of our services.”

BWA Insolvency Limited

The place you go when Voluntary Administration will help rebuild your business future

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Straight Talk

Business rescue using voluntary administration

Business using Voluntary Administration

We saved four businesses last year. A plumber in Napier, a retailer in Havelock North, an engineering firm in Auckland and a mechanical engineering firm in Fiji. All businesses were facing liquidation, but all now have a solid future. There is still more work to be done but at least they’re on their way and have avoided the risk of liquidation.

It isn’t magic but it sure feels like it when you’ve saved a business for the owners, the creditors and the community it deals in. One of the most gratifying for me, in last year’s achievement, was the ladies dresswear shop in Havelock North. This business has a long history in the area, but absent management had ground its reserves down to dust. A late stage employee showed all the hallmarks of a sound business person and the business was transferred to her and is now flourishing.

Every business and its difficulties are unique. The goal of Voluntary Administration is to avoid liquidation if it is possible to do so. Our objective is to work alongside the Directors to find the problems and to solve them so that the business can start it rehabilitation. It’s not an easy thing to achieve but worth every bit of effort when the business is saved.

Voluntary Administration

Voluntary Administration is a legal model that has as its central purpose the objective of providing a stressed, but viable business, with the means to rehabilitate itself wherever possible as an alternative to liquidation. BWA Insolvency Limited specialises in the field of business rehabilitation through voluntary Administration and has achieved a nationwide reputation for the results earned.

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Voluntary Administration

The VA Model

The VA Model

Expectations from model law require the people involved to make it successful. Typically, model law enables and seeks to provide a good mix between the perception of what lawmakers would like to see occur and the skills of the person striving to achieve the outcome desired by the appointer.

There is no just-add-water framework able to be devised in a legal framework. Human interaction is required to provide the light and colour behind the lawmakers’ endeavours that are sought to be achieved.

There are more skills required when attempting to turnaround a failing business than in any other commercial circumstance. Lack of resources, broken connections and thwarted goals are the normal landscape for the Practitioner engaged and from this canvas, a revitalised and viable business is to be remade.

The objective of the Voluntary Administration model is defined as being able to see whether, or not, the Company, or the business, can continue in existence. The framework is comprised of four entwined dynamics:

  • The assigning of power and control to an independent Administrator
  • The existence of a moratorium, preventing the withdrawing of property and termination of contracts (does not apply to some secured creditors)
  • The requirement of the Administrator to investigate, report and recommend
  • The devolving of the ultimate decision of the Companies future to the Creditors by means of voting within a meeting of the general body of creditors

All this is to be achieved in 25 working days. Day one is the date of appointment and day 20 is the date on which the Administrator’s report is to be provided to creditors. The report provides information material to creditors so they can make an informed decision about the future of the Company. The Administrator is required to provide an opinion on those same facts and to make a recommendation regarding the company and its future. The recommendation is framed by the resolution that creditors will consider in general meeting. These later steps are to take place in the Watershed Meeting that is required to take place no later than day 25 from the commencement of the Administration.

Court extensions and adjournments can add further time to the process, but even if that does occur it will be time limited and not really change the fact that the Voluntary Administration is a pressure cooker event designed to provide some breathing space so that options can be considered, and a decision made in respect of the proposal.

Amidst the turmoil that results from a formal state of insolvency, the Administrator adopts the obligation to hold the form and shape of the business, preserve its inherent value, consider elements of viability, conduct formal processes and report to creditors in a way that enables a decision to be made. It’s a short and focussed process with the single-minded objective of preventing the demise of the business – and that’s a far better outcome than the misery of liquidation will ever be.

VOLUNTARY ADMINISTRATION IS THE LEGAL ALTERNATIVE TO LIQUIDATION.