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Week 10: External administrations the DO NOT terminate the business,…
Week 10: External administrations the DO NOT terminate the business
Schemes of Arrangement
To trade out of financial difficulty
Financial difficulty
Court order for creditors' meeting, then vote by creditors meeting
Administrator appointed under scheme to carry out the terms of the scheme, usually involving moratorium or compromise of debts, possibly restructure of shares
Scheme carried out to completion
Receivership
To pay a secured creditors' debt
Default by company (usually by non-payment) under a security
Secured creditor enforces security by appointing a receiver
Receiver takes over the secured asset(s), often a business, and manages it in order to return enough funds (either from profit or proceeds of sale) to pay off the secured creditors' debt
Receiver terminates administration when debt paid
Voluntary Administration
To trade out of financial difficulty
Insolvency
Decision of board of directors, secured creditors or liquidators
Administrator investigates and reports to creditors on whether deed of arrangement can be entered into to allow company to trade out of difficulties
Creditors vote to replace VA with deed of arrangement (similar to a scheme) or with a liquidation, or simply to terminate the VA
Voluntary Admin vs Restructure
Restructure
Voluntary Administration
Board considers that the company is insolvent or likely to become insolvent
Any company
Board appoints voluntary administrator (who must be a registered liquidator)
Deed of arrangement
Creditors must vote on a proposal at the 2nd creditors meeting, which usually must take place within 20 business days
Company liabilities do not exceed $1M
Board appoints restructuring practitioner (who must be registered liquidator)
Restructuring plan
Restructuring plan must be proposed within proposal period, usually 20 business days. Proposed plan and supporting documentation must be given to affected creditors as soon as practicable. There is then an acceptance period of 15 business days, or longer if details of debts are considered
Unsecured debts are postponed.
Secured debts may only be pursued IF:
enforcement started before the administration or restructure was triggered; or
the security is perishable; or
the security is over substantially all the assets of the company
Voluntary administrator take over control of the company from the board
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Board remains in control but requires consent of restructuring practitioner (or order of the Court) to engage in transactions outside the ordinary course of business.
Restructuring practitioner provides advice and assistance in formulating a restructuring plan.
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Effect on creditors
Termination
Effect on Control
Grounds
Key eligiblity criteria
Trigger
Desired outcome
Duration