Voluntary Administration (VA) became law in New Zealand on 1 November 2007.
VA is about trying to save a company that is trading profitably, but has debts that make it insolvent. It is similar to the Chapter Eleven process in the United States.
When a company enters Administration, an Administrator is appointed. The Administrator has the powers very similar to that of a liquidator as outlined above, except the Administrator is charged with trying to save the company by getting the creditors to agree to waive some or all of the money that is owed to them, and allowing the company to come out of Administration and to trade on under the same ownership. Under this regime the shareholders do not lose all of their investment, if the re-organisation is successful.
Legal action against the Company
Legal action against the company is suspended for the duration of the Administration unless agreed to by the Administrator, or permitted by the courts.
Enforcement Against Personal Guarantees
Creditors are not allowed to enforce personal guarantees during the Administration. This is important. It means that if you have personally guaranteed any of the companies debts, the creditors are unable to enforce the debts until the Administration ends.
5 Phases of Voluntary Administration
- Appointment of an Administrator
The appointment of an Administrator is commenced by a company resolution of the Board (although it can be done by the courts or a creditor in some cases).
- Initial Creditors meetings
A meeting of creditors is convened within 8 working days after appointment of the Administrator. The purpose of this initial meeting is to confirm, or change, the Administrator.
- Ongoing Administration
As the Administrator comes to grips with the issues facing the company, he can continue to run the business as a going concern.
- Watershed Creditors Meeting
Twenty five days after the appointment of the Administrator, the Administrator must present to a second creditors meeting a proposal for the restructure of the company (The Deed of Company Agreement or DOCA), or a recommendation for the liquidation of the company. The creditors can accept the DOCA or not.
- DOCA or liquidation
The board has fifteen days to consent to the DOCA, at which time the company moves from being in Voluntary Administration to being governed by the Deed. The Deed is administered by the Deed Administrator (typically the Voluntary Administrator), and the Deed expires at a set time or once events specified in the Deed are reached (repayment of companies debt, after ninety days, etc).
Why Voluntary Administration
The Administration period is usually between 30-40 days. It is a quick way to regain control of your business if a deed of arrangement is the desired outcome. It allows you to make a genuine contribution to paying your creditors off over time. You are able to continue your business and your creditors should also agree to keep supplying your company.