The case for Voluntary Administration

The case for Voluntary Administration

The first in a series of eight blog posts.

From January 2014 up to the end of March 2018 there have been 216,157 new companies incorporated. Over the same time there have been 11,155 companies that have gone into liquidation. In earlier years the statistics were much more in balance.

The corporate personality is the entity of choice for those persons that want separate legal distinction. Incorporating is the thing to do to manage risk while ring fencing different commercial activities. The ease with which one can legally clone themselves and be distant from the risk is attractive, inexpensive and, until recent times, has been wholly effective.

There is sophisticated intent in this pursuit. A consciousness to express the incorporators commercial aspirations through an entity that distances the risk from the person that may caused the exposure. For low cost of incorporation, under $300, and investment of shareholder capital of normally $100.00 (which is rarely paid) the new Director is free to engage with creditors while quarantining the shareholders from exposure. The company is less now a mechanism for collection of capital, spreading risk and limitation of liability than it is a device of commercial expediency around one person.

Suppliers and providers have their answer though and often look to sureties (bond providers, guarantors and indemnifiers) to meet the obligation of the company when it cannot. This leaves the Company as an entity that is trying ring fence risk but at the same time destroying that very feature by the making of enforceable agreements against third parties.

So how does Voluntary Administration fit into the picture? Well regardless of how the parties deal with their risk exposure it is very clear that there is minimal reliance in the handshake promises and assurances that underpinned commerce 20 and 30 years ago. Parties are becoming increasingly more sophisticated in their dealings with others and the blunt instrumentality of liquidation or receivership is simply not up to the mark when it comes to recovery or rehabilitation.

The core objective of Voluntary Administration is to reorganise those elements of the business activity that have the potential to survive and take the rehabilitative steps required to bring them back into viability. That’s better for everyone, debtor, creditor and the economy. In subsequent blogs I will discuss the VA model and show how it can be very effective to manage failing businesses and restore them to viability.

If you’d like to learn about Voluntary Administration in more detail, click here to watch my latest video and get in touch.

 

 

Bryan Williams, Principal, BWA Insolvency

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