A voluntary administrator plays a pivotal role in voluntary administration which offers struggling businesses a chance to restructure and potentially return to profitability.
This article explores the reasons behind such decisions, with a specific look at why administrators, including those from Deloitte Australia, may distance themselves from certain cases, such as the ongoing woes of Australian carrier REX Airlines.
The Role of a Voluntary Administrator
A voluntary administrator is a professional, often from accounting or insolvency firms, appointed to oversee a company experiencing financial distress. Their primary goal is to assess the company’s situation and propose the best course of action to maximise returns for creditors. This could involve restructuring the company’s debts, selling off assets, or, in some cases, winding up the business if recovery is not feasible.
Administrators undertake several key tasks:
- Assessment: Conducting a thorough review of the company’s financial position and operations.
- Decision Making: Determining whether the company can be saved, should be restructured, or must be liquidated.
- Reporting: Providing regular updates to creditors and stakeholders, outlining the company’s status and proposed plans.
- Implementation: Executing the agreed-upon strategies to manage or resolve the insolvency situation.
Why Voluntary Administrators Might Refuse an Appointment
Despite the importance of their role, not all firms that handle voluntary administrations accept every appointment. Several factors influence their decision to refuse certain engagements:
Conflict of Interest
A primary reason for declining an appointment is the presence of a conflict of interest. Administrators must remain impartial and objective. If they have any prior or existing relationships with the company, its directors, or major creditors that could compromise their objectivity, they are ethically bound to refuse the appointment.
Capacity and Resources
Handling a voluntary administration is resource-intensive. Firms must ensure they have adequate staff, time, and resources to manage the process effectively. If a firm is already managing multiple complex cases, they may decline new appointments to avoid overextending themselves and compromising the quality of their work.
Expertise
Different businesses require different types of expertise. If a firm lacks the specific industry knowledge or experience needed for a particular case, they might refuse the appointment. This ensures that the company in distress gets the most suitable and effective assistance.
Legal and Ethical Concerns
Administrators are responsible for adhering to legal and ethical standards. If there are concerns about potential violations or unethical practices within the company seeking administration, firms might steer clear to protect their reputation and avoid litigation.
Financial Viability
Firms conduct preliminary assessments to determine whether voluntary administration is a viable option for the distressed company. If the prognosis is particularly poor and there is little hope of a successful restructuring, firms might decline the appointment to avoid investing time and resources into a likely futile effort.
Reputation Management
Administration assignments can attract significant public and media attention. If a firm’s involvement in a controversial or high-stakes administration could negatively impact its reputation, it might choose to avoid the appointment.
Deloitte and REX Airlines
A case in point is Deloitte Australia’s decision to distance itself from the ongoing financial troubles of REX Airlines. As one of Australia’s prominent accounting and advisory firms, Deloitte is no stranger to handling high-profile insolvencies.
On 27 July 2024, The Australian reported that REX Airlines management had asked for Deloitte to be its administrator in charge of a restructuring, specifically asking for Sal Algeri and Richard Hughes. The duo were notable in their administration of Virgin Australia Group back in early 2020, which resulted in the carrier entering 2021 with a revitalised business and strategic direction under Chief Executive Officer (CEO) Jayne Hrdlicka.
Around the same time as the news broke, REX Airlines stopped all bookings and later suspended share trading on the ASX at 9:30AM on 29 July 2024. Airline management declined to announce any resumption of trading. Speaking on the news of Deloitte possibly being called again to handle an airline administration, Transport Workers Union CEO Michael Kaine said the union was open to working with them once more, having collaborated with them in Virgin Australia’s recovery, but stressed the need for a national aviation regulator to prevent similar episodes from occurring.
However, in a letter to REX shareholders on 30 July 2024, Deloitte officials said they cannot take on the REX Airlines case nor would they ask for the job. The airline later announced that EY Australia has accepted the role, with Samuel Freeman, Justin Walsh, and Adam Nikitins as the joint administrators. REX – specifically Regional Express Holdings and certain REX Group subsidiaries – officially went under administration on 31 July 2024. An estimated 350 capital city staff and 260 regional staff will be made redundant.
For the time being, REX’s domestic flights to the state/territorial capitals using the Boeing 737 jet are cancelled but regional flights using the SAAB 340 turboprop will still continue. Virgin Australia also came forward to help passengers who booked flights on REX’s 737s use their tickets on similar Virgin routes – but the offer will be valid only until 14 August 2024. Ms Hrdlicka said REX employees who might be let go are going to have higher priority in Virgin Australia’s recruitment pool if they decide to apply.
Brewing Tension
REX calling in the administrators came after months of woes.
The airline announced in February 2024 that it’s losses for H1 FY24 tallied $3.2m following $16.5m in H2 FY23. Singapore businessman Lim Kim Hai, who was one of REX’s founding directors in 2002 and currently holds a commanding 16.9 per cent share in the company, served as executive chairman until he was sacked in June 2024 with his deputy, former Transport Minister John Sharp, assuming his spot. Chief Operating Officer (COO) Neville Howell moved up to the CEO seat, taking over Lim’s executive duties.
Lim immediately went on the warpath, requesting a shareholders’ meeting on 6 September 2024 to kick out Sharp and three other directors and nominate two replacements, and also be reinstated to the chairmanship.
The federal government also shared their concerns at REX’s situation and expressed hope of recovery. The carrier is known to service regional Australian locations that other companies, particularly the recently beleaguered Bonza, have not accessed, even for weekly flights. Those communities fear losing REX flights will affect their quality of life and access to basic supplies, especially for outlying towns in their shires.
Conclusion
Voluntary administration may be a lifeline to struggling businesses but they must carefully evaluate each potential appointment to ensure they can deliver the best outcomes while protecting their own interests and reputation.
Deloitte Australia’s decision to distance itself from REX Airlines exemplifies these considerations in action. While the exact reasons for their choice remain confidential, it highlights the complexities and strategic thinking involved in accepting or declining voluntary administration appointments. For businesses facing financial distress, understanding these dynamics can help in selecting the most suitable and effective administrators to guide them through challenging times.
DISCLAIMER: This article is for informational purposes only and does not supersede business advice. AVANTE PARTNERS has no relationships with any airline or professional services company handling voluntary administrator duties. This article is not meant to commend, highlight, or disparage any company.
