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.