How does an external administration work?

If you or your fellow directors decide to go down the path of external administration, there are usually two alternatives available:

1. A voluntary liquidation which is called a Creditors Voluntary Liquidation, notwithstanding the fact that it is the shareholders of the company that actually appoint the voluntary Liquidator by a resolution at a meeting of the company’s shareholders; or
2. A voluntary administration which can be achieved by a resolution of the company’s director(s).

It is important to note that if your company is unable to pay its debts as they fall due and the creditors are not being paid, it is possible for a creditor to initiate a compulsory liquidation of your company. This process occurs when a Statutory Demand expires after 21 days from it’s date of issue. Once a Statutory Demand has expired without being settled, the creditors lawyers are then able to apply to the Courts for an order to wind your company up in a court appointed, compulsory liquidation.

If you have received a Statutory Demand and the 21 days has not yet expired, you are still able to appoint a voluntary administrator or voluntary liquidator but once the 21 days has expired and a wind up application is commenced, it is very difficult to reverse this process without full payment of the debt along with associated legal expenses incurred by the other side.

Once a liquidator or voluntary administrator are appointed to your company, the process is taken out of the hands of the directors of the company and the appointed person will oversee this process until finalisation of the liquidation or the administration.

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