Chapter 2:
The role of the Administrator
A board of directors – or sole director in such circumstances – is entitled to appoint a nominated VA, an accountant practicing in the area of insolvency and restructuring who has been formally registered by ASIC.
The VA process is different to appointing a Liquidator. Normally the appointment of a Liquidator stops the business in its tracks. It ceases trading and the Liquidator has the job of selling the assets, firing the employees and taking any recovery action against directors. The VA process in theory tries to avoid this.
The Administrator, as they are usually referred to, upon consenting to be appointed, and a resolution of directors being passed, effectively takes over the running of the business for a period of time.
Importantly, the Administrator will likely only accept an appointment if he or she is comfortable that their fees and costs will be covered – either through the cash and assets which the business has at the time of the appointment or on the provision of a nominated sum by the business or a director of the business, to cover those fees and costs.
Of course, what that nominated sum might be is very much dependent on what work the Administrator believes will be required to complete the job, including potentially:
- complying with some very stringent legislative bookkeeping and reporting obligations;
- the costs of running the business and what revenue might be generated;
- an assessment of future cashflow;
- what investigations might be required including the need to understand the history of the business;
- identify assets which can be utilised or recovered; and
- the need to formally investigate individuals involved with the affairs of the Company and consider possible recovery action against individuals in certain scenarios – particularly where the VA process will likely be replaced by a liquidation process
A fail-safe respite?
A business owner might reasonably believe that the appointment of an Administrator is a fail-safe way of simply ensuring he or she is protected (from possible action by unpaid creditors) and a VA will allow an opportunity for the business to essentially “take a breath”, ride the current crisis, stave-off creditors, keep employees and, once trading normalises, the Administrator will take their reasonable share and hand the business back to the director, who will continue to run it in the successful fashion which was the case prior to the current crisis.
Of course, as with most things in life, the reality is not so simple. Indeed, in the case of the VA process, the statistics belie the giddy intentions of the legislation.
For the purpose of this Guide we are focused on Small and Medium size Enterprises (SMEs) – not the likes of Virgin Airlines with its 16,000 employees and the government looking over your shoulder for a resolution.
The Australian Bureau of Statistics (ABS) uses the following definition based on the number of persons employed in a business:
https://tidybiz.com.au/pages/what-is-a-small-medium-enterprise-sme
- a micro-business employs between 0-4 persons
- a small business, between 5-19 persons
- a medium business, between 20 and 199 persons; and
- a large business employing 200 or more persons [3]
The ATO defines an SME as one with a turnover of less than $10M p.a.