Voluntary Administration

In New Zealand, voluntary administration is a formal insolvency process that allows financially distressed companies to undergo a restructuring or potentially avoid liquidation. It is governed by the Companies Act 1993 and is initiated by the company's board of directors when they believe that the company is, or is likely to become, insolvent.

The key aspects of voluntary administration in New Zealand are as follows:

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• Appointment of an Administrator: The directors of the company appoint a licensed insolvency practitioner, known as an administrator, to take control of the company's affairs. The administrator must be independent and act in the best interests of all creditors.

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• Investigation and Report: The administrator conducts a thorough investigation into the company's financial position, operations, and prospects. They prepare a report that outlines the company's affairs and provides recommendations to creditors regarding the options available.

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• Moratorium on Legal Proceedings: Upon the appointment of the administrator, a statutory moratorium is triggered. This moratorium provides a temporary halt on legal proceedings and creditor enforcement actions against the company, giving the administrator time to assess the company's position and propose a plan for its future.

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• Proposal for a Compromise or Arrangement: The administrator may propose a compromise or arrangement to creditors, known as a deed of company arrangement (DOCA). The DOCA outlines a plan for restructuring the company's affairs, which may involve repayment of debts, changes to the company's ownership or management structure, or other measures aimed at returning the company to viability.

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• Creditors' Meeting and Voting: A meeting of creditors is held to consider the administrator's report and the DOCA proposal. Creditors vote on whether to accept or reject the proposal. If the DOCA is accepted by the majority of creditors by both number and value, it becomes binding on all creditors, and the company can proceed with the agreed-upon arrangements.

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• Liquidation or Termination: If the DOCA proposal is rejected or if the administrator determines that a DOCA is not viable, the company may be placed into liquidation. In liquidation, the company's assets are sold, and the proceeds are distributed among the creditors according to the priority of their claims.

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Voluntary administration in New Zealand provides a formal process for financially distressed companies to address their financial difficulties, explore restructuring options, and potentially continue operating. It aims to strike a balance between the interests of the company and its creditors, facilitating the best possible outcome for all parties involved.