Restructuring in voluntary administration : evidence from Australian listed public companies

Introduction of the statutory voluntary administration (VA) process in mid 1993 represented a significant change to corporate insolvency law in Australia in providing greater opportunity for companies to attempt to resolve their financial distress. The final decision regarding the administration outcome is determined by company creditors, who can conclude the relatively short administration period by supporting a deed of company arrangement (DOCA) or have the company wound-up in a statutory liquidation. The focus of this paper is on the relationship between financial information available at the time a company enters VA and the VA outcome. In particular, we explore how financial information that indicates a company’s capacity to restructure its debt contracts and assets relates to the VA outcome. Cluster analysis is used to explore the financial profiles of companies that have three different VA outcomes, which are: liquidation, a deed of arrangement that provides for company reorganisation, or a deed of arrangement (or liquidating deed) that provides for sale of the company’s business or assets. Our analysis indicates that (1) different financial profiles at the time of entering VA are associated with different VA outcomes and, (2) a company’s ability to restructure its debt contracts and issue new financial claims against assets are critical to the VA outcome.