Voluntary administrations or VA's are a relatively new insolvency procedure. It is typically used when a company which trades profitably but has debts that means it is insolvent. Typically, a company enters into VA by a resolution of the board of directors. Alternatively, a liquidator, secured creditor or an unsecured creditor through an application to the court can place a company into VA. The administration period lasts for approximately 30 days, by which time the administrator is required to convene a watershed meeting to determine the future of the company.
At the watershed meeting, the administrator provides a recommendation to creditors on whether:
i. the creditors should accept a deed of company arrangement (ie a proposal for debts to be repaid); ii. the trading of the company is returned to the director; and iii. the company should be placed into liquidation.
A VA provides a moratorium to the company against legal action from creditors for the duration of the administration. However, General Security Agreement holders are still entitled to appoint a receiver to the company during the administration period. Creditors are also precluded from enforcing personal guarantees during the administration period.