Voluntary administration is a process undertaken by companies that are in financial difficulties. An administrator is appointed that assesses the options available to the company and attempts to restructure or otherwise resolve its debts so that it can continue trading or, where this is not possible, to liquidate the company.

Voluntary administration is initiated through a majority of directors voting for it. At this point a moratorium is established on recovery action that can be undertaken by creditors and prevents the enforcement of any personal guarantees provided by any of the directors. The process is intended to avoid the necessity of going to court to resolve a company’s outstanding financial obligations.

Voluntary administration is an option for a company that has become temporarily insolvent, has had a large one-off loss or bad trading period that led to the difficulties or that has an otherwise viable business but needs relief from creditors so that it can restructure the company to rebuild its financial position. It is used when a company is otherwise relatively healthy and can see a path to continuing its operations successfully and does not want to take the final step of liquidation to wind up the company.

This process is not always successful, with only about a quarter of companies continuing to trade afterwards. It is important that the administrator provide advice on best the method to restructure the company’s affairs since this is the key determinant of success or failure.

A voluntary administrator is appointed by the directors (or in some cases by secured creditors) to provide independent advice on the best way forward. During the restructuring process the administrator takes control of the company and will work with directors to assess the possibility of trading out from its financial difficulties. They will undertake a thorough examination of the company’s affairs and provide an independent opinion to creditors as to the financial status of the company and the best plan going forward.

The administration process is relatively easy to initiate and creates the opportunity to reassess a businesses operations to see whether it can be saved. It provides an opportunity to negotiate with creditors to see if a solution can be found such as offering a repayment plan or a restructuring of the company’s debts. In some cases the owner and directors of the company can retain a partial share of the business or it can be sold on as a going concern to an outside party and employees are able to retain their jobs.