An overseas company finally launches in Australia and everyone is excited. The store’s first trading day is a celebrated event. The store seems to be quite popular, and you can always see customers in the store when you walk by. Fast-forward a few years, and the company abruptly announces it’s going into ‘Voluntary Administration’.
This may sound like a familiar scenario – because it is. Max Brenner is just one of many companies that have struggled to thrive in the Australian market. Other notable examples of this trend include Topshop in 2017 and Foodora just last month.
Here we will look at what it means when a company goes into Voluntary Administration, the costs of operating an international brand in Australia and explain that as dramatic as the phrase ‘Voluntary Administration’ sounds, it doesn’t necessarily mean that it’s the end for the company in question.
Insolvency
A company becomes insolvent when it is no longer profiting, or when its debts exceed its profits. When a company becomes insolvent, it has options on how it wants to proceed. Does the company want to ‘shut up shop’ and be wound up? Or does it want to review its finances, find the source of the problem, and hopefully be able to restructure it to make it solvent again?
What it means when a Company goes into Voluntary Administration
The latter of these options is known as ‘restructuring’ and includes when a company goes into receivership or administration. Voluntary Administration is where the company is itself taking steps to fix its financial woes, although they usually appoint an external ‘administrator’. The role of the administrator is to undertake a review of the company’s assets and offer potential solutions. The administrator needs to be someone external who is a liquidator registered with ASIC.
At the conclusion of the review, the administrator can recommend that the company change its practices under a Deed of Company Arrangement, or that the company should be wound up.
Incorporating an International Company in Australia
A company that is trading overseas cannot simply ‘jump’ into the Australian market. These companies have to follow the same process that all Australian companies do, that is, they have to be registered as an Australian company, have an ACN, and adapt their marketing strategy to Australian consumers. Along with this come tax and reporting obligations to the ATO and ASIC. Further, international companies which open stores in Australia often have to charge higher prices due to tariffs and other importation costs.
It may sound like the end, but that doesn’t mean that it is
Although it’s never a good sign when a company goes into administration, there is a chance it can still be saved. Often, a company will be restructured in an attempt to become solvent again. Another potential outcome is that a company will be sold to an external buyer, or ‘rescued’ if it comes under the umbrella of a larger company. A company is normally only wound up in this instance if there are no buyers or feasible ways to make the company profitable again. Put simply, Voluntary Administration can result in the company continuing to trade and eventually recovering, or its cessation.
Max Brenner certainly isn’t in a sweet spot right now, but only time will tell if it can get itself out of its current predicament.
