What Is Voluntary Administration?
Voluntary administration (VA) is an insolvency procedure under Part 5.3A of the Corporations Act 2001 (Cth) that allows an insolvent (or likely insolvent) company to be placed under the control of an independent administrator, with the objective of maximising the chances of the company — or as much of its business as possible — continuing in existence, or if that is not possible, achieving a better return for creditors than would result from immediate liquidation.
VA is a breathing space — a moratorium against most creditor actions — during which the company and its administrator investigate the company’s affairs and present creditors with a structured decision about the company’s future.
For directors facing a financially distressed company, VA is one of the most important tools available. It can stave off creditor pressure, preserve business value, and — through a Deed of Company Arrangement — give the company a genuine pathway to recovery. Used properly, it can also provide directors with protection against insolvent trading claims for debts incurred during the administration period.
Boss Lawyers’ team experienced in insolvency law regularly advises directors on whether and when to appoint a voluntary administrator, and how to navigate the process strategically.
What Is a Deed of Company Arrangement (DOCA)?
A Deed of Company Arrangement (DOCA) is a binding agreement between the company and its creditors that governs how the company’s affairs will be dealt with following voluntary administration. It is the mechanism through which a company can emerge from VA with a plan to pay creditors — often on better terms than they would receive in a liquidation — while continuing to trade.
A DOCA is not automatic. It must be proposed by someone — usually the directors, a prospective purchaser of the business, or a third-party investor — and approved by creditors at the second creditors’ meeting. Once executed, it is binding on all creditors who were party to the administration, including those who voted against it.
The DOCA is the single most important outcome of the VA process for a company that has a viable future. It is how hundreds of Australian companies each year avoid liquidation and restructure their debts.
How Does Voluntary Administration Begin? Sections 436A, 436B and 436C
VA can be triggered in three ways under the Corporations Act:
Section 436A — Director-Initiated Administration
The most common trigger. The directors of the company may appoint an administrator by resolution if they believe the company is insolvent or is likely to become insolvent. This is the primary mechanism for a voluntary, planned administration. Directors should act promptly once they form the belief that the company is or will likely become insolvent — delay can expose them to insolvent trading liability for debts incurred in the interim.
Section 436B — Liquidator or Provisional Liquidator Appointment
A liquidator or provisional liquidator who has been appointed to the company may appoint an administrator if they believe VA would be in the company’s and creditors’ best interests. This can occur where a winding-up application has been filed but VA is considered a better outcome.
Section 436C — Secured Creditor Appointment
A secured creditor whose security covers the whole, or substantially the whole, of the company’s property may appoint an administrator. This gives major secured creditors (such as a bank holding an all-assets security) an alternative to enforcing their security directly.
The Timeline: What Happens During Voluntary Administration
VA operates on a tight statutory timetable. Understanding this timeline is critical for directors and creditors alike.
Day 1: Appointment of Administrator
Once appointed, the administrator takes control of the company’s business, property, and affairs. Directors are displaced from management — they retain their office but cannot exercise their functions without the administrator’s consent. The moratorium immediately takes effect: most secured creditors, owners of property used by the company, and unsecured creditors cannot take enforcement action against the company without the administrator’s or court’s consent.
Within 8 Business Days: First Creditors’ Meeting
The administrator must convene and hold the first creditors’ meeting within eight business days of appointment. The purpose of this meeting is narrow — creditors may vote to replace the administrator or to appoint a committee of creditors. The administrator reports on the company’s affairs to creditors.
The Investigation Period: Up to 20 Business Days
The administrator has a standard period of approximately 20 business days (extendable by the court) to investigate the company’s affairs, assess its financial position, and evaluate the available options. During this period, the administrator prepares a detailed report to creditors setting out:
- The company’s financial position and history
- The circumstances that led to insolvency
- An analysis of whether the company is insolvent
- Whether it is in creditors’ interests for the company to execute a DOCA, be returned to the directors, or be wound up
- If a DOCA is proposed, the details of the proposal and a comparison with the estimated return in a liquidation
The Second Creditors’ Meeting
The second creditors’ meeting is the pivotal event in VA. It must be held within the prescribed timeframe (generally within 25 business days of appointment, though the court can extend this). At this meeting, creditors vote by majority in number and value on one of three outcomes:
- Execute a DOCA — if a DOCA proposal has been put forward and creditors consider it superior to liquidation
- Return the company to the directors — if the administrator is satisfied the company is solvent or creditors consider this appropriate (rare in practice)
- Wind up the company — place the company into creditors’ voluntary liquidation
What Does a DOCA Contain?
A DOCA must be in writing and executed within 15 business days of the second creditors’ meeting (unless the court extends this). Under section 444A of the Corporations Act, a DOCA must specify, among other things:
- The property of the company (or of a third party) that is available to pay creditors
- The debts to which the DOCA applies
- The order of priority for payment of those debts
- The conditions (if any) that must be satisfied before the DOCA takes effect
- The circumstances (if any) in which the DOCA terminates
In practice, DOCAs vary widely. Common DOCA structures include:
- Contribution DOCAs — a director or related party contributes a lump sum (or series of payments) into a deed fund for distribution to creditors, and the company continues trading
- Sale DOCAs — the business and assets are sold to a purchaser, with the proceeds distributed to creditors
- Compromise DOCAs — creditors agree to accept cents in the dollar rather than the 0 cents they might receive in liquidation
- Restructuring DOCAs — the company’s capital structure and debt is restructured, with equity or other interests given to creditors
DOCA vs Liquidation: Which Is Better for Creditors?
The administrator’s report to creditors must include an analysis comparing the estimated return under the proposed DOCA with the estimated return in a liquidation. Creditors will vote in favour of the DOCA only if they believe it offers a superior outcome.
Key factors in this comparison include:
- The quantum and timing of the payment under the DOCA versus the estimated dividend in liquidation
- The certainty of the DOCA payments versus the uncertainty of a liquidation (which may involve litigation to recover voidable transactions)
- Whether any major creditors have indicated they will support or oppose the DOCA
- The ongoing value of the business relationship with the company if it is to continue trading
Liquidation is typically the outcome where no viable DOCA proposal has been put forward, where the DOCA offers a worse return than liquidation, or where creditors have lost confidence in the directors and the business model.
Director Duties During Voluntary Administration
Once a company enters VA, directors are substantially displaced but retain important obligations:
- Duty to assist the administrator — directors must provide the administrator with access to the company’s books and records, execute a Report as to Affairs (RATA) setting out the company’s assets, liabilities, and financial position, and cooperate fully with the administrator’s investigation
- No dealing with company property — directors cannot deal with company property without the administrator’s consent
- Continued disclosure obligations — directors remain officers of the company and retain certain statutory obligations
- Propose a DOCA promptly — if directors intend to propose a DOCA, this must be done in a timely manner to allow the administrator to assess it and include it in the report to creditors
Directors should also understand that the moratorium protecting the company during VA does not protect them personally. Personal guarantees can still be called upon. Director Penalty Notices from the ATO can still be issued in certain circumstances. Seeking early legal advice is critical.
The Role of the Deed Administrator
Once a DOCA is executed, the deed administrator (who may be the same person as the VA administrator) takes over responsibility for implementing the DOCA’s terms. This typically involves:
- Collecting contributions or proceeds owed under the DOCA
- Adjudicating on creditor proofs of debt
- Distributing the deed fund to creditors in the order of priority specified in the DOCA
- Monitoring compliance with DOCA conditions
- Terminating the DOCA when its terms have been fulfilled
Once a DOCA is fully implemented and terminated, the company is released from the debts covered by the DOCA and can continue trading with a clean slate — at least in respect of those creditors.
What Creditors Can Expect During a DOCA
Creditors bound by a DOCA cannot pursue the company for debts covered by the DOCA while it is in effect. The moratorium on enforcement action that applies during VA continues in modified form under the DOCA. Creditors must submit proofs of debt to the deed administrator to participate in any distribution.
Importantly, employee entitlements (wages, superannuation, leave) and certain other priority creditors rank ahead of unsecured creditors in the distribution. Secured creditors’ rights depend on whether the DOCA specifically binds them — a DOCA does not automatically bind secured creditors who do not vote in favour, though the court can order otherwise.
Practical Director Checklist: When Your Company Is in Distress
- ✅ Obtain legal advice immediately — do not wait until the company is clearly insolvent
- ✅ Engage an insolvency practitioner to assess the company’s financial position
- ✅ Identify whether VA is appropriate or whether an alternative (such as safe harbour restructuring) is preferable
- ✅ If proceeding to VA, select an experienced administrator
- ✅ Prepare the Report as to Affairs accurately and promptly
- ✅ Consider whether a DOCA proposal can be structured — who might fund it, on what terms, and whether creditors are likely to accept it
- ✅ Preserve all company books and records
- ✅ Do not pay personal creditors in preference to others in the period before VA (risk of insolvent trading and preference claims)
- ✅ Understand that personal guarantees are not protected by the VA moratorium — seek specific advice on personal exposure
Boss Lawyers acts for directors, creditors, and administrators in voluntary administration and DOCA proceedings. Our team experienced in insolvency law and commercial litigation can help you navigate the process and achieve the best available outcome. Call 1300 267 711 for a confidential discussion.
Frequently Asked Questions
Can directors propose a DOCA to keep the company alive?
Yes. Directors are the most common source of DOCA proposals. A director may propose a DOCA that involves them (or a related party) contributing funds into a deed fund for distribution to creditors, in exchange for the company continuing under their control. The administrator will assess the proposal and include it in the report to creditors, who will vote on whether to accept it. The DOCA must offer creditors a better outcome than liquidation to be accepted.
What happens to employees during voluntary administration?
Employment contracts are not automatically terminated by the appointment of an administrator. The administrator may choose to keep employees on if the business is continuing to trade. Employees are priority creditors for unpaid entitlements (including wages, leave, and superannuation) — they rank ahead of unsecured creditors in any distribution. Employees may also be entitled to access the Fair Entitlements Guarantee (FEG) scheme administered by the Federal Government if their employer becomes insolvent and cannot pay their entitlements in full.
How long does a DOCA last?
There is no prescribed maximum duration. A DOCA lasts for as long as it takes to fulfil its terms — which could be a matter of months (for a simple lump-sum payment DOCA) or several years (for a DOCA involving ongoing trading contributions or a structured repayment plan). Most contribution DOCAs are designed to be completed within twelve to twenty-four months. The DOCA terminates automatically once its conditions are fulfilled, at which point the company is released from the covered debts and the administration ends.
This is general information only and is not legal advice. You should obtain professional advice specific to your circumstances.
If you are facing an insolvency issue as a director, creditor, or business owner, Boss Lawyers can help. We regularly act in insolvency matters across Brisbane and Queensland, including voluntary administration, liquidation, and director liability claims. Contact us on 1300 267 711.
