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Who Can Benefit from Voluntary Administration (VA)?
Voluntary Administration (VA) is an effective solution for a wide range of businesses facing financial difficulties. It is particularly beneficial for companies that:
1. Are Insolvent or at Risk of Insolvency
Businesses that are unable to meet their debts when they fall due or are likely to become insolvent within the foreseeable future.
For example, companies with excessive debt levels, poor cash flow management, or an unsustainable business model that has led to financial distress.
A VA can provide the breathing space needed to assess options for recovery, restructure debts, and attempt to return to profitability.
2. Have a Viable Core Business but Require Financial Restructuring
Some businesses, while insolvent, have underlying assets, operations, or markets that remain profitable. A VA can enable them to continue trading while restructuring their finances, reducing debt, or negotiating more favorable terms with creditors.
For instance, businesses facing unmanageable leases or unprofitable contracts may benefit from a VA, as it allows them to renegotiate these obligations in a controlled environment.
3. Are Affected by External Factors Beyond Their Control
Companies that suffer financial setbacks due to factors such as the sudden loss of a key customer, supplier, or a significant market downturn.
For example, a business reliant on a few major clients may find itself struggling when one of those clients defaults, leaving the company burdened with debt but otherwise viable. A VA allows them to restructure and potentially find new opportunities.
4. Are Struggling with Legacy Debts
Companies that have accumulated substantial legacy debts, such as tax liabilities (e.g., outstanding ATO obligations), unpaid employee entitlements, or creditor claims from past trading periods.
Voluntary Administration helps companies take control of these obligations and negotiate with creditors to compromise or reschedule debts, allowing the business to continue operations and improve its financial position.
5. Require Time to Reorganize or Restructure Operations
Businesses that need time to reorganize their operations, streamline costs, or shift their business model to remain competitive in the market.
This could involve refocusing on core services, divesting non-core assets, implementing cost-cutting measures, or rebranding to attract new customers. VA offers the stability to undertake these strategic changes without the threat of immediate liquidation.
6. Have Temporary Insolvency Due to Revenue Fluctuations
Companies facing temporary financial distress, such as a drop in revenue due to seasonality or market conditions, that anticipate returning to solvency once circumstances stabilize.
For example, a business may face insolvency during an off-season period but expects to return to profitability in a few months. VA allows the company to restructure during this downturn, giving it the time needed to stabilize and recover.
7. Are Facing Litigation, Threatened Liquidation or Personal Liability
Companies under threat of legal action from creditors, including winding-up petitions, can benefit from the immediate protection provided by VA.
This gives the business time to assess options, formulate a recovery plan, and, if applicable, negotiate a Deed of Company Arrangement (DOCA) to resolve outstanding debts without facing forced liquidation.
8. Need to Preserve Jobs and Brand Value
VA can help preserve jobs and protect the brand reputation by avoiding immediate liquidation, which often leads to job losses and the dissolution of the company.
For companies with a loyal customer base, strong brand equity, or a reputation for quality, maintaining operations and completing a successful restructuring is often preferable to liquidation, both from a financial and reputational perspective.
9. Directors Facing a Director Penalty Notice (DPN)
Directors facing a Director Penalty Notice (DPN) for unpaid tax obligations (such as PAYG or superannuation) can use VA to shield themselves from personal liability. The VA process provides a temporary reprieve from enforcement actions, allowing the company time to resolve its financial issues and protect directors from potential personal penalties.
If you believe your business could benefit from a Voluntary Administration (VA), KPT is here to assist. Specialising in restructuring and helping Australian businesses regain financial stability, our expert team is ready to guide you towards renewed profitability and growth.
Contact KPT today for a consultation and take the first step towards navigating your business to a more secure and prosperous future.
