Reasons for a secured creditor to support an administration
Where there is a doubt as to whether enforcement of the security would realise sufficient sums to repay the secured debt, putting together a Deed of Company arrangement with the co-operation of the directors and the other creditors may result in a better outcome for the secured creditor.
However, the floating charge element of the charge may be depleted during the administration as the administrator has an indemnity for remuneration and debts incurred during the administration which rank in priority to the company’s unsecured and secured debts.
Some reasons why a secured creditor might support a Voluntary Administration:
- The secured creditor may want the affairs of the company or the directors examined. The administrator has investigative powers better than a Receiver & Manager.
- There may be an advantage in an administrator running a business to overcome potential problems with parties such as a landlord who has rental arrears, lessors of property who want to take possession, retention of title creditors etc which a receiver would otherwise have to deal with.
- The assets covered by the security may be such that it makes no difference to a secured creditor as to whether they are recovered for the secured creditor by a Receiver & Manager or Voluntary Administrator.
- If the secured creditor is satisfied with the capabilities and integrity of the person to be appointed administrator, the secured creditor may be prepared to allow the administration to proceed.
- Transactions between the company and the secured creditor could be liable to challenge pursuant to the voidable transaction provisions of the Corporations Act if the company was to go into liquidation. The administrator does not have the power to challenge voidable transactions. It may therefore sometimes be in a secured creditor’s interests to keep the company out of liquidation.
- The secured creditor may prefer to allow the company to appoint an administrator to avoid unwanted publicity.
- The chargee may decide to allow an administrator to be appointed where there are ongoing problems with assets which could bring liability on a secured creditor or the Receiver & Manager.