Rise in voluntary administrations reshaping perceptions
Audit reports from CPA Australia show more than a quarter (28 per cent) of medium-sized Australian Securities Exchange (ASX)-listed companies were almost insolvent last year.
Furthermore, there was a 28 per cent rise in voluntary administrations (VAs) in the three months to June 2014, according Australian Securities and Investments Commission (ASIC) statistics.
These figures signify the significant financial challenges currently facing small to medium companies, advisory firm BRI Ferrier's principal, Antony Resnick, said.
"We expect this upward trend to continue as more directors opt for a VA as a final resort attempt to salvage the business when the realization dawns that the company no longer has the means to continue trading".
However, the rise in VAs also signifies the role of the option is changing and no longer simply a precursor for liquidation.
""If initiated early enough and the directors have a considered plan for restructuring the business, VAs can be a valuable lifeline, giving distressed companies the maximum chance of survival."
M+K Lawyers principal agreed VAs were no longer seen as a path to bankruptcy, but rather a responsible means of protecting directors and creditors interests during tough financial times.
"Putting a company into administration is a finely balanced decision but at the end of the day, erring on the side of being proactive can allow the directors to preserve a measure of control over the company's destiny and enhance their chances of saving it through a reconstruction that can mean the difference between liquidation and a new lease on life," he said.
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