Blemishes found in voluntary administration rules
By Gabrielle Costa
September 12, 2003

Voluntary administration rules designed to help failing companies stay afloat may not be effective for large corporations and could need strengthening, a government committee has said.

In a discussion paper to be released today, the Corporations and Markets Committee notes that voluntary administration provisions used recently by companies such as failed airline Ansett were "devised with smaller and medium companies in mind (and) may not be the most suitable for major cases".

When the voluntary administration rules came into force in 1993, they were intended to bolster a company's chances of survival as much as possible. Where failure was inevitable, they were to minimise losses and thus maximise payouts to creditors.

The committee, which is loaded with legal experts, is considering a revision of voluntary administration laws in light of several "principles" that include encouraging companies to act quickly when the potential for financial failure is recognised.

Consideration also had to be given to the reluctance of directors to report a possible failure, the paper said.

"Directors may . . . be concerned about the likely market response to the company entering into a rehabilitation procedure, as well as the possible loss of the company's, and their own, commercial reputation."

Failing companies should also be encouraged to negotiate with creditors, and be able to seek finance to improve the chances of surviving hard times, the committee said.

"The prospect of a financially distressed company being rehabilitated may be improved if it can be encouraged to enter discussions with its major creditors as soon as possible on how best to rectify its financial position," the report said.

This story was found at: http://www.smh.com.au/articles/2003/09/11/1063268515282.html