Aussie Farmers went into administration this week, and it seems some donut franchises are also struggling. It doesn't look like anyone is trying to salvage or sell Aussie Farmers. But what does it mean to go into administration, as opposed to liquidation or receivership.
What is administration?
A company can enter into voluntary administration. This can be done by the directors, a liquidator or a creditor with a charge over the whole company. The purpose of administration is for the administrator to determine whether the company can be restructured, the administrator has 35 days to do this and no one can enforce debts during this period. The purpose of administration is to allow the company to trade, to stop others from enforcing debts by liquidating or taking assets, so that the administrator can try to either trade their way out of the debt or sell the business. If this doesn't work then the company is wound up.
What is liquidation?
Put quite simply, liquidation or winding-up is usually selling the assets. A voluntarily appointed liquidator is appointed specifically for this purpose of declaring whether the company is solvent. In most cases the company is not solvent, and the assets are sold in order to pay off some of the debts. If the company is found to be solvent, then the company can continue to exist. If someone moves the court for an order for compulsory liquidation, and obtains that order, then the assets will be sold.
What is receivership?
A company has a receiver appointed over a specific asset or class of assets. A receiver is sort of like an investigator, looking into the assets, reporting any misdeeds to ASIC, and deciding whether to apply to wind up the company. It is still possible after the appointment of a receiver to trade your way back out. A receiver is generally appointed by the Court, or a creditor.
So what's the difference?
In most cases pragmatically there isn't a large difference, there are further legal differences and options between these three strategies but in most cases it means the company probably won't survive.
The employees will lose their job and their benefits as their benefits are not secured debts. The shareholders and creditors will get paid cents on the dollar. Unless there is insolvent trading or some other misconduct to pierce the corporate veil and pursue the directors for misconduct then that will be the end of the story. In some cases the company might be able to trade it's way out of difficulty, in some cases the company is simply being stripped and sold for parts.