On Wednesday 14 June 2017 Network Ten announced that it had entered voluntary administration.
What is voluntary administration?
Administration is a process that attempts to save a company that is, or is at risk of becoming, insolvent from liquidation (winding up). The aim is to provide an opportunity for the company to enter into an arrangement with its creditors to maximise the company’s chances of continuing or, if this is not possible, to attempt to provide a better outcome for the company’s creditors and shareholders than would otherwise result from an immediate winding up of the company.
‘Voluntary’ means that the processes is initiated by the company, rather than by court order.
According to Network Ten’s announcement, the TV broadcaster failed to secure a guarantee for a $250 million loan it had sought to continue its operations beyond December 2017. This put the company at risk of insolvency and left the administrators with no choice but to enter administration.
How is voluntary administration initiated?
Voluntary administration is simple to initiate. A majority of directors resolve that the company is, or is likely to become, insolvent and that an administrator should be appointed. The company may then appoint an administrator in writing.
Network Ten has appointed KirdaMentha as its administrator.
What is the role of the administrator?
The administrator (who must be a Registered Liquidator and who is closely supervised by ASIC) runs the voluntary administration process. While a company is under administration, the administrator acts as the company’s agent and takes control of the company’s business, property and affairs, and of the restructuring process.
The administrator will:
- investigate the company’s business, property, affairs and financial circumstances to advise creditors whether it would be in their best interests for the company to execute a deed of company arrangement (DOCA), come out of administration, or be wound up;
- call meetings of creditors to decide the company’s future;
- help the directors prepare a proposal or DOCA; and
- assist in the implementation of the DOCA.
What is a deed of company arrangement (DOCA)?
A DOCA is a proposal to a company’s creditors with the object to maximise the chances of the company’s continuation, or to provide a better return for creditors than an immediate winding up of the company. The creditors must then resolve to enter into the DOCA.
Administrator’s powers:
While the company is under administration, the administrator may:
- carry on the business and manage the company’s property and affairs;
- terminate or dispose of all or part of the business and any of the property;
- perform any function and exercise any power that the company could perform or exercise if it were not under administration;
- remove and appoint directors;
- execute documents and commence or defend proceedings in the company’s name and on its behalf; and
- exercise whatever powers are necessary to achieve the purposes of the administration.
While a company is under administration, its officers cannot perform or exercise a function or power as an officer unless approved by the administrator and property cannot be dealt with without the administrator’s or the Court’s consent. Creditors are also barred from any recovery action while the company is in administration.
Network Ten’s administrator will undertake a financial and operational assessment of the company, working closely with the company’s management, employees, suppliers and content partners. The administrators will propose either retuning Ten to the directors, selling or recapitalising the business, or giving the creditors control.
How often is administration successful?
ASIC statistics show that only 1 in 25 companies that come into financial difficulties and enter formal administration successfully execute a DOCA or reach an agreement with creditors on restructuring. This low success rate indicates that expert advice is required before entering into voluntary administration as it is often incorrectly prescribed as the best solution.
If your business becomes insolvent, a bad trading period or a once-off loss is causing you financial problems, or you have a viable business but need a freeze on creditors to allow you time to cut debts, reduce costs, and rebuild sales and profit margins, you should seek legal and financial advice.
If your business is in such a situation, or if you are a creditor of a company under administration, contact one of our commercial lawyers for trusted legal advice on the best solution to protect your business and interests.
Insolvency and administration can also impact on staff and their families as their employer faces an uncertain future. Lynn & Brown Lawyers can also provide expert legal advice to both employees and employers on their entitlements and obligations.
About the authors:
This article has been co-authored by Claudia Giovannini and Steven Brown at Lynn & Brown Lawyers. Claudia is currently studying law at UWA and hopes to be admitted as a Perth lawyer in or about 2018. Steven is a Perth lawyer and director, and has over 20 years’ experience in legal practice and practices in commercial law, dispute resolution and estate planning.
