Voluntary administration is a process in Australia designed to resolve a company’s financial difficulties in a way that maximises the chances of the company continuing, or if that is not possible, results in a better return for creditors than an immediate winding up of the company. This process is governed by the Corporations Act 2001 (Cth).

Key Features of Voluntary Administration

1. Appointment of an Administrator:
   • The process begins when the company’s directors appoint an external administrator, known as a voluntary administrator.
   • The administrator must be a registered liquidator.
2. Role of the Administrator:
   • The administrator takes control of the company and its affairs.
   • They investigate the company’s financial situation and report to creditors.
   • The administrator’s primary goal is to assess the company’s viability and recommend the best course of action.
3. Moratorium on Legal Actions:
   • Once an administrator is appointed, there is a moratorium on most legal actions against the company.
   • This provides the company with breathing space to restructure or sell its business without the pressure of ongoing litigation.
4. Creditors’ Meetings:
   • Two key meetings of creditors are held during the administration process.
     • The first meeting is held within eight business days of the administrator’s appointment to decide whether to replace the administrator and to establish a committee of creditors.
     • The second meeting is held within 25 business days (or 30 business days if the administration began in December or January) to decide the company’s future.
5. Outcomes of Voluntary Administration:
   • Deed of Company Arrangement (DOCA): Creditors may agree to a DOCA, which is a binding arrangement between the company and its creditors outlining how the company’s affairs will be dealt with.
   • Liquidation: If the creditors decide that the company cannot be saved, they may vote to place the company into liquidation.
   • Return to Directors: In some cases, the creditors may decide to return the company to the control of its directors.

Advantages of Voluntary Administration

• Protection from Creditors: The moratorium on legal actions provides the company with temporary relief from creditors.
• Restructuring Opportunity: The process allows for the possibility of restructuring the company to improve its financial position.
• Better Returns for Creditors: It can result in better returns for creditors compared to immediate liquidation.

Disadvantages of Voluntary Administration

• Cost: The process can be expensive due to the fees of the administrator and other associated costs.
• Uncertainty: The outcome of the administration process is uncertain and can result in liquidation.
• Impact on Reputation: Entering voluntary administration can negatively impact the company’s reputation and relationships with stakeholders.

Legal Framework

The process of voluntary administration is primarily governed by the Corporations Act 2001 (Cth), particularly under Part 5.3A.

What Is the Voluntary Administration Process?

1. The First Meeting of Creditors After the administrator is appointed, all company creditors receive notice of the first meeting, which occurs within 8 days. During this meeting, creditors can vote to:

• Replace the administrator (often with another creditor).
• Form a committee of creditors to work closely with the administrator.

As a company debtor, this meeting keeps you informed about the process and its impact on your debt.

2. The Voluntary Administrator Investigates and Reports Following the first meeting, the administrator examines the company’s affairs and reports the findings to the creditors. This investigation assesses the company’s ability to pay its debts and suggests an outcome, such as:

• Continuing to trade.
• Being wound up.

3. Second Meeting of Creditors The administrator holds a second meeting within 25-30 business days of their appointment to determine the company’s future. Creditors receive notice of this meeting at least 5 business days in advance.

At this meeting, creditors decide among three options:

• Deed of Company Arrangement (DOCA): A binding agreement between the company and its creditors, outlining debt coverage and payment order.
• Liquidation: If the company cannot pay its debts, a liquidator sells its assets to pay creditors in priority order.
• Return to Directors: The company may be revived and returned to the directors if its debts are managed.

What Is the Best Outcome for Me?

If You Are a Secured Creditor: As a secured creditor, you have a security interest in the company’s assets, giving you greater protection. If registered on the Personal Property Securities Register (PPSR), you take priority in the administration process. Generally, you cannot enforce your secured interest during administration, but in liquidation, DOCA, or return to directors, you are second in line for payment after unpaid wages and benefits for employees.

If You Are an Unsecured Creditor: Your position as an unsecured creditor depends on other creditors’ priorities. You may be chasing:

• An unpaid invoice not covered by an agreement.
• A loan without security.

Your chances of satisfying your debt are higher if the company returns to the directors. In a DOCA, your interest may be prioritized after other creditors. In liquidation, you may not receive full or any payment for your unsecured debt, potentially leaving you out of pocket.

If You Have a Personal Guarantee: A guarantee can be from an individual or company. For small or medium businesses, it is often provided by an individual. This allows you to pursue the guarantor personally if the company enters liquidation and cannot pay its debts, subject to the guarantee’s terms.