Voluntary Administration Services in Tasmania & interstate

Step

What happens

 Appointment of Administrator

A company’s director/s control the appointment of an Administrator, which must occur by resolution by a majority of directors. The appointment usually occurs after they determine the company is insolvent or likely to become insolvent.

Less commonly, a liquidator, provisional liquidator, or secured creditor may appoint an Administrator.

Voluntary Administration begins on the appointment of the Administrator.  

First meeting of creditors

The Administrator must hold the first meeting of creditors within 8 business days of being appointed (unless the court allows an extension of time) and must provide creditors with at least 5 business days’ notice of the meeting. 

At the meeting, creditors can vote to:

• Replace the Administrator; and/or
• Form a committee of inspection

Administrator’s investigation and report

The Administrator must investigative the company’s affairs and report to creditors on the three options available:

• That the administration should end and the company be returned to the director/s;
• Enter into a Deed of Company Arrangement (DOCA); or
• Place the company into liquidation.

The Administrator must provide an opinion on each option and recommend which option is in the best interests of creditors. 

The Administrator must hold a second meeting of creditors to decide the company’s future within 25 business days* of being appointed (unless the court allows an extension of time) and must provide creditors with at least 5 business days’ notice of the meeting. 

*or 30 business days if the appointment occurs around Christmas or Easter

Creditors can vote at the meeting to:

• End the administration and the company be returned to the director/s;
• Execute a Deed of Company Arrangement (DOCA); or
• Place the company into liquidation.

Upon the appointment of an Administrator, the director/s powers are suspended and the Administrator takes control of the company’s business operations and assets. The Administrator will then need to determine a course of action they consider to be in the best interests of the business and creditors, which may include continuing to trade all or part of the company’s business, sell the company’s business or cease trading. 

During Voluntary Administration, director/s cannot use their powers and must provide the Administrator with the company’s books and records, a Report on the Company Activities and Property (ROCAP) and any further information that the Administrator reasonably requests.

If the company goes from Voluntary Administration into a Deed of Company Arrangement (DOCA), the director/s powers will depend on the terms outlined in the DOCA. Following completion of the DOCA, the director/s will regain full control of the company, unless the DOCA specifies that the company should be liquidated thereafter.

If the company goes from Voluntary Administration or a DOCA into liquidation, the director/s cannot use their powers. If creditors determine to end the Voluntary Administration, control of the company goes back to the directors.

1.    Company returned to director/s

Creditors will rarely resolve to return the company to its director/s. If the company is returned back to the control of its director/s and continues operating, the director/s are responsible for ensuring the company pays its outstanding debts as and when they fall due.

2.    Enter into a Deed of Company Arrangement (DOCA)

If the creditors vote for the proposed DOCA, the DOCA must be executed within 15 business days after the creditors meeting (unless the court allows a longer time). If the DOCA is not executed within this time, the company will automatically go into liquidation.

The DOCA becomes a binding agreement between the company and its creditors, even if they voted against the proposal. The DOCA outlines how the company’s affairs will be managed, particularly in regards to the repayment of debts and restructuring of the company's operations.

The purpose of a DOCA is usually to avoid the immediate liquidation of the company and provide a pathway for it to continue trading while addressing its financial difficulties. It typically involves some form of compromise or arrangement with creditors to restructure debts, often offering them a better outcome than they would receive in a liquidation scenario.

3.    Place the company into liquidation

If the creditors resolve to place the company into liquidation, the Administrator becomes the liquidator, unless creditors vote at the second meeting of creditors to appoint a different liquidator of their choice. This liquidation is a creditors voluntary liquidation, with assets being realised by the liquidator and the proceeds being paid to creditors in order of priority as set out in the Corporations Act 2001.

A Voluntary Administration will end when creditors have determined at the second meeting of creditors to either:

• End the administration and the company be returned to the director/s;
• Execute a Deed of Company Arrangement (DOCA); or
• Place the company into liquidation.

Who can be appointed as an Administrator?

An Administrator must be a Registered Liquidator. Both Barry Hamilton and Kiara Calvert are Registered Liquidators and full members of the Australian Restructuring and Insolvency Turnaround Association (ARITA), which imposes high standards on its members. 

After taking control of the company, the  Administrator investigates and reports to creditors about the company’s business, property, affairs and financial circumstances. The Administrator’s role is to oversee the process of assessing the company’s prospects whether that’s returning to trading, Deed of Company Arrangement (DOCA) or Liquidation and provide an opinion on each option and recommend which option would be in the best interest of the business and its creditors. 

During Voluntary Administration, the director/s cannot use their powers and the Administrator has all the powers of the company and its directors. This includes the power to sell or close the company’s business or sell individual assets in the lead up to the second meeting of creditors, where creditors will vote to determine the company’s future. 

If the Administrator incurs any debts after the date of appointment, they will be personally liable to pay these costs, or any shortfall if there are insufficient funds available from the company assets. 

The  Administrator must conduct investigations into the company’s affairs and provide adequate information in the second report to creditors on the company’s business, property, affairs and financial circumstances so creditors can make an informed decision as to how they will vote at the meeting of creditors.

The Administrator is also required to report any offences they identify to the Australian Securities and Investments Commission. 

What is the effect of the appointment on creditors?

On the appointment of an Administrator, there is a moratorium on creditors’ claims. The moratorium operates to provide the company with breathing space while the company’s future is resolved. While the company is in Voluntary Administration:

• Unsecured creditors cannot begin, continue or enforce their claims against the company without the Administrator’s consent or the court’s permission;
• Owners and lessors of property are prevented from taking action to recover their property;
• Except in limited circumstances, secured creditors cannot enforce a charge on property of the company;
• Creditors cannot commence a court application to put the company into liquidation; and
• A creditor cannot pursue a personal guarantee without the court’s consent. 

Creditors play an important role in a Voluntary Administration by voting at creditors meetings.

Creditors are entitled to vote at the creditors meetings if they have lodged a claim with the Administrator prior to the meeting, which the chairperson of the meeting decides to accept for voting purposes.

A creditor is entitled to appoint a proxy to attend and vote at the meeting on their behalf.

Prior to a meeting of creditors, the Administrator will issue a detailed report so creditors can make an informed decision as to how they will vote at the creditors meeting. 

A committee of inspection may be formed at the first meeting of creditors to assist and advise the Administrator or Deed Administrator. The committee of inspection also:

• Monitors the conduct of the Administrator or Deed Administrator;
• May approve certain steps in the Voluntary Administration or Deed Administration; and
• May give directions to the Administrator, who must have regard to the directions but is not always required to comply with them. 

There are three possible outcomes if a company is in Voluntary Administration:

1.    Company enters a Deed of Company Arrangement (DOCA)

If the company executes a DOCA, employees will receive payment of their entitlements according to the terms of the DOCA.

2.    Company is returned to the control of director/s

If the company is returned to the control of the director/s employees will continue to work and get paid as before. In this case, the company director/s are responsible for paying outstanding employee entitlements as they become due and payable.

3.    Company is placed into liquidation

If the company is placed into liquidation, it will be wound up and employees employment will cease and employees will be paid in order of priority as set out in the Corporations Act 2001. In the event there is a shortfall, employees may be eligible to make a claim with the Fair Entitlements Guarantee Scheme (FEG) for payment of their entitlements subject to any limitations and other than superannuation.

If you were a contractor, director of the company or a relative of the director of the company within 12 months of liquidation you will not be eligible to make a claim with FEG for payment of your entitlements. 

The FEG is designed to pay employees who have lost their jobs because their employer entered into liquidation or became bankrupt. Employees will not be eligible to make a claim with FEG for payment of their entitlements whilst the company is in Voluntary Administration. If the creditors determine at the second meeting of creditors to place the company into liquidation, then employees will be eligible to make a claim with FEG. 

Creditors who hold a registered security over the whole or substantially the whole of the company’s property are entitled to exercise their security as long as it occurs within 13 business days of the appointment of the  Administrator. If they do not take action within that time, they are bound by a moratorium for the duration of the Voluntary Administration period. 

Voluntary Administration is one of the solutions available for a company in financial distress, however, there are a range of other possible solutions that may be more appropriate. 

Voluntary Administration versus Small Business Restructuring

In January 2021 the Australian Government introduced a new insolvency regime called Small Business Restructuring as a pathway to try and save as many businesses as possible - a pathway for small businesses to combat debt, keep the doors open and survive long term. 

The Small Business Restructuring regime provides a streamlined process for eligible small businesses to restructure their company debt and reach a legally binding agreement with creditors.

The process is cheaper, faster and less complex than a Voluntary Administration and during the restructuring process owners remain in control of business operations whereas in a Voluntary Administration control of the company’s operations transfers to the Administrator.

Head to our Small Business Restructuring page for further details. 

Voluntary Administration occurs when a company in financial distress enters into Voluntary Administration in order to try and save the company’s business, whereas Liquidation involves the orderly winding up of the company’s affairs and the distribution of assets in order of priority as set out in the Corporations Act 2001.

Head to our Liquidation page for further details.

Winding up Application

A company may appoint an Administrator after receiving a winding-up notice. However, both the Administrator and the company must present a compelling case to the court justifying why the Administration process should proceed. If the court is convinced that continuing under the Administration process serves the company's best interests, it will typically issue an order to adjourn the winding-up application.

 Contact us today for a free and confidential consultation to discuss if a Voluntary Administration is the right solution for your business.