Voluntary administration is very popular in Australia but only has about a 4 per cent success rate, a New Zealand insolvency specialist says.
Whitcoulls' owner, Australian-based REDgroup Retail last night appointed Ferrier Hodgson to take over the management of its businesses in New Zealand, Australia and Singapore.
PKF Corporate Recovery and Insolvency managing director Anthony McCullagh says the laws in Australia encourage directors to try voluntary administration.
McCullagh says once a company defaults on its loans the board has two weeks to put it into voluntary administration or the directors become personally liable for paying GST. New Zealand does not have this built into its law.
Administration allows the company's financial position to be frozen while the administrator and creditors determine the company's future.
The crunch point is the first watershed creditors meeting which must be held soon after the appointment.
Ferrier Hodgson expects to hold the creditors meeting for REDgroup in the first week of March.
The aim of the meeting is to get creditors to agree to a delayed repayment plan for the money owed to them.
The plan must receive at least 75 per cent approval by monetary value and more than 50 per cent by number of creditors.
If those thresholds are passed the agreement is binding on all of the creditors.
But if the agreement can't be reached the company will go into liquidation which means the focus will be on closing the business down and selling off its assets to pay back as much money to creditors as possible.
McCullagh says the success rate of voluntary adminstrations has been low in both Australia and New Zealand and the vast majority of companies end up going into liquidation.
In New Zealand voluntary administration has only been around since November 2007.