Australian-owned businesses are closing their doors at an alarming rate and entering voluntary administration. But what does this actually term mean?
Category
🗞
NewsTranscript
00:00This is becoming a familiar sight across the nation as Australian-owned businesses close
00:05their doors at an alarming rate.
00:08When a struggling business announces its close-off, it's often said to open to voluntary administration.
00:13So what does this mean?
00:14When a company is unable to pay their debts, they become insolvent.
00:19As they can no longer meet their financial obligations, they can choose to go into voluntary
00:23administration and appoint an administrator.
00:27This gives the company, and potentially any new investors, time to formulate a plan with
00:32the administrator in the hopes of saving the business.
00:36So this involves going through accounting reports, financial reports, talking to management
00:41and talking to key staff, sometimes talking to key customers and key suppliers, and if
00:47there's a key lender or lenders in the business, usually talking to them as well.
00:52The voluntary administration period normally lasts between 25 to 30 days.
00:57During this time, unsecured creditors are stopped from continuing or commencing any
01:01claims against the company.
01:03A creditor is someone who is owed money from the collapsing business.
01:07They may be owed payment if loans have been made or if goods or services have not been
01:11received.
01:12A creditor may also be an employee of the collapsing company who is owed wages and entitlements.
01:18At the end of the administration period, the business will either continue to trade
01:22under the control of its directors, or it could be placed into liquidation, or a deed
01:28of company arrangement will be organised.
01:32Liquidation is when the company can no longer function and the focus from this point is
01:36distributing the company's assets in a way that returns the most value to its creditors.
01:41A liquidator is appointed to protect, collect, sell and distribute the company's assets.
01:47A deed of company arrangement, or a docker on the other hand, is a binding agreement
01:52between a company and its creditors.
01:54It's made to show transparency about how the company's affairs should be dealt with.
01:59Dockers maximise the chance of the company's survival and aims to provide a better return
02:03to creditors.
02:04Often, this means creditors will accept partial payment of their debts, with the remainder
02:09being forgiven once the docker is complete.