“There don’t seem to be too many DOCAs put up. Administrators are appointed and they tend to roll into liquidation because that’s where the better return is because people aren’t prepared to invest in a deed of company arrangement.”
He says sometimes there’s a problem when the banks appoint a receiver manager over the top of the administrator who is there to look after the other creditors. “The receiver manager undertakes a process where he realises the assets and accounts to the bank for the amount they’re owed and retires and the administrator has got what’s left. And invariably that won’t be a business,’’ he says.
“What we are seeing is the market has changed where the directors are so aware of their liabilities that they are appointing administrators and the banks, who are normally aware of the financial difficulties of the company and are normally trying to get a result, then appoint over the top.
“There aren’t many deeds that get up. Most companies do tend to go into liquidation either because their secured creditor has appointed a receiver who has sold the assets or the majority of the assets or the business is just not performing, for whatever reason.”
David Stimpson, a director at insolvency specialist SV Partners, says describing voluntary administration as a “kiss of death” is too simplistic.
“It’s a kiss of death when the directors will turn to a voluntary administration as a last resort but that’s usually because the business is inherently cactus if you like,’’ Stimpson says.
“It depends on the circumstances. It depends on what type of business it is, it depends on whether the company has any goodwill with its customers and creditors and financiers. A lot of the time, businesses in that position have burned their bridges with their customers and their suppliers and also the financiers. Quite often the appointment of an administrator will result in the company going into liquidation but it’s not because of the voluntary administration.
“You would probably find that less than 50% of voluntary administrations would succeed. More often than not, it would result in the eventual liquidation of the company but still, there are some VAs that do work.”
Kate Warwick, a partner with the corporate advisory and restructuring team at PricewaterhouseCoopers, says every case has to be assessed on is merits.
“There are businesses that do come out of the voluntary administration process where a deed of company arrangement has been successfully implemented,’’ Warwick says. “Each circumstance is different and there are nuances with each company that is placed into administration. You go through the process and when there is a deed of company arrangement put on the table, the creditors vote on whether to accept that or not.
“You need to look at the broader economic environment. The likelihood of a company emerging from the voluntary administration process is a function of a multitude of factors and each voluntary administration and scenario is quite different. Whether it is easier now than it has been historically I’m not sure that that’s an appropriate measure because I believe you have to look at each circumstance on its merits individually.”
Warwick is right, of course. No two voluntary administrations are alike and some companies do trade out or are sold. But insolvency specialists say they would be the exception to the rule. If the voluntary administration is not the kiss of death, it’s a bad sign about the company’s future prospects. Except for maybe five out of one hundred.
