Voluntary Administration (VA) is the proactive alternative to liquidation. While relatively new in New Zealand, it is widely used in Australia and further afield. VA aims to assist all parties affected by the collapse of a business by offering them the breathing space so that the issues consuming the business can be addressed. This allows time to form acceptable agreements with creditors and shareholders, and can be the best solution for business rehabilitation – and continuation.
For businesses that are struggling yet have potential, VA is the perfect alternative to closing their doors and liquidating the business. During the VA process, a company’s directors and management work with an appointed administrator, such as BWA, to work through the legal framework, address the issues choking the business, and arrive at the best possible outcome for all parties. VA allows a business to ‘freeze time’ temporarily until they can get back on track.
At BWA, we have a unique understanding and extensive experience as voluntary administrators. Since this law was introduced nationally, we have restored many New Zealand businesses that would have otherwise been forced into liquidation.
When should you consider VA?
Here are some instances where VA should be considered as an alternative over immediate liquidation:
- When the business can survive if the weight of its creditors are lifted by means of a compromise.
- When a sudden and outside event impacts upon the company. These type of events may cause a negative reaction from secured creditors unless a protective veil is drawn down while the future of the business is considered.
- When viability of the business would become likely if a new business strategy or plan is implemented, as agreed by those affected.
- When the business of the company can be viable in the hands of new owners and a period of transition is required.
- Where cost efficiencies result from the alteration of contractual obligations bringing viability back in to the business.
Changes to the law
Socially speaking, the Government has an interest in helping businesses to survive. Business collapse causes loss to creditors, redundancy for employees, and a loss of technologies.
The VA part of the Companies Act differs greatly from the notion of simply entering into a Creditor Compromise. Instead, VA provides more certainty, with a more detailed framework of how business rehabilitation can take place. It gives creditors, and other parties involved, more confidence in the process and outlines how their rights can be exercised when insolvent circumstances exist.
It also brings New Zealand law in line with that of Australia, Canada, and UK, all of who have had similar statutes integrated into their commercial law for over 20 years. This means New Zealand-based companies operating or purchasing internationally in these countries can negotiate and talk on the same legal terms when it comes to rehabilitation.
Want to know more?
- Read Bryan’s blog Voluntary Administration – The Undersold Solution.
- Watch this video to see how we helped Pacific Scaffolding and Cartune Auto Services.
- Or contact us for a free and confidential discussion.