The Voluntary Administration Process
The voluntary administration process can be a vital asset to corporate insolvency as it aids companies to satisfy their debts. This is usually achieved through a Deed of Company Arrangement (“DOCA”) or by entering liquidation. Part X of the Bankruptcy Act can also provide a solution to insolvency.
DOCA – Voluntary Administration Process
A DOCA is a formal arrangement made during the voluntary administration process between a company and its creditors which outlines how the affairs of the company will be handled. The agreement is binding and aims to improve the company’s chance of survival or to facilitate a greater return for creditors. The terms of the deed sets out the order in which creditors will be paid, however, there are still some priorities which must be accounted for.
If a proposal to enter a DOCA is voted in, the company has 15 days to sign the deed or they will automatically enter into liquidation.
Liquidation – Voluntary Administration Process
Liquidation occurs during the voluntary administration process where a company is insolvent or where its members want to terminate the company. The liquidation process involves winding up any financial affairs of the company so as to make the termination process as simple as possible. It involves dismantling the company’s structure in an orderly fashion and distributing assets to creditors in accordance with the prescribed priority. Following the liquidation process the company will be deregistered and will cease to exist.
Part X – Voluntary Administration Process
Part X of the Bankruptcy Act is also helpful to corporate insolvency as it can aid the company in avoiding bankruptcy. This section allows a debtor to escape bankruptcy by entering an arrangement to satisfy their debts owed with their creditors. The arrangement is called the personal insolvency agreement. Part ten avoids the restrictions that bankruptcy would place on an insolvent company and also benefits creditors by providing a higher dividend than would be received in bankruptcy.
The agreement is executed in the form of a deed once the creditors have consented to the proposed terms. The proposal contains lawful terms which detail how the debtor will satisfy their debts. A personal insolvency agreement usually provides for periodic payments, the sale of assets, and the acceptance of a sum less than the full amount.