Posted by: Angelo Venardos | Date: 8 January 2016
This week, Dick Smith went into voluntary administration which raises questions about what will now happen to the consumers and creditor’s of Dick Smith.
Voluntary administration is a process whereby an “external administrator” is voluntarily appointed by a company to manage its affairs, in the hope that the company will ultimately recover from whatever financial difficulty is being experienced and continue to trade.
The idea behind appointing a voluntary administrator is to give the company “breathing space”. The process usually takes a few months and the company continues to trade during the period of voluntary administration.
Once the company has been given some “breathing space” so to speak, the administrator issues a report to the creditors of the company advising them as to the financial state of the company. A voting process is then undertaken so that the creditors can in effect determine the future of the company based on the recommendations of the external administrator.
Typically, one of the following courses of action will be recommended and ultimately come to fruition:
If a creditor is an employee or shareholder, the administrator is required to prioritise recovering the debt owed to that creditor before compensating unsecured creditors.
Unsecured creditors, including anyone who has goods under layby, a credit note or gift card to redeem must register their debts with the external administrator who will determine whether or not payment, partial payment or a refund can be made after the secured creditors have been compensated.