Of the 10,000 businesses that entered Voluntary Administration in Australia in financial year 2024, we’ll likely see: 8,000 (80%) to go into liquidation; and 2,000 (20%) negotiate a Deed of Company Arrangement (DOCA) to pay down creditors.
Just 1 in 5 Australian businesses are expected to survive Voluntary Administration.
4 in 5 will not be as fortunate.
Two questions arise from these statistics: Is Voluntary Administration the optimal approach for businesses facing potential insolvent trading? And those that do survive, did they really need to enter Voluntary Administration in the first place?
These questions come as banks, financiers, suppliers, advisers, and other stakeholders increasingly collaborate on turnaround alternatives.
Banks and private financiers are offering restructuring options, injecting capital, and negotiating favourable terms that can stave off the need for Voluntary Administration altogether. Meanwhile advisers are working hand-in-hand with business owners and leaders to negotiate favourable terms, cut costs, and bring in talent to reinvigorate the businesses.
The choice of entering Voluntary Administration is profound and irreversible. Businesses risk losing control over critical decisions, damaging their relationships with suppliers and customers, and facing higher costs associated with legal and administrative processes. Moreover, the stigma of Voluntary Administration can tarnish a company’s reputation, making it harder to attract future investment or business opportunities.
Analysis by Rebound Advisory found that half of the businesses referred to them and slated for Voluntary Administration had more viable turnaround options available to them. With only 1 in 5 companies likely to survive a Voluntary Administration, company directors should think deeply before falling for the seduction of an insolvency practitioner pedalling restructuring through a formal insolvency mechanism. A second opinion may well lead to avoiding unnecessary risk, complexity and cost in a business rebound.