An exploratory study of the company reorganisation decision in voluntary administration

A primary purpose of the voluntary administration legislation is to provide a flexible procedure by which a company can attempt to reorganise its affairs and continue trading. Informed decision-making regarding which companies should attempt reorganisation is critical to the efficient operation of company rescue legislation. This paper explores decision-making associated with the voluntary administration process, with a focus on the relevance of financial information to the reorganisation decision. Statistical models are developed to provide some insight into the reorganisation decision and the problem of identifying suitable (successful) reorganisation candidates from a pool of distressed companies. Additionally, insolvency experts' decisions regarding companies' prospects in reorganisation are examined. The decision accuracy of insolvency experts was found to be significantly lower than statistical model accuracy, indicating that further development of statistical models may be a useful aid to insolvency experts.