A voluntary administration is a legal process that occurs when a company is insolvent and an independent, qualified outsider (known as the voluntary administrator) is appointed to review the company’s future.
A company can be placed into voluntary administration by its directors, a secured creditor or a liquidator.
The aim of voluntary administration is to assess the processes and financial prospects of a company with a view to continuing a company’s operations (if feasible).
Once a company is placed into voluntary administration, the voluntary administrator takes control from the directors and has full power over the company.
The voluntary administrator’s first task is to gain an understanding of the company’s assets, liabilities and business prospects.
The voluntary administrator must hold the first creditors meeting within eight business days of their appointment. At this meeting, creditors can vote to replace the voluntary administrator and/or create a committee of inspection.
Assuming the voluntary administrator is retained, they will then conduct a more thorough review of the company. The voluntary administrator will share their findings at the second creditors meeting, which must be held within 25 business days of their appointment.
The voluntary administrator will recommend that creditors do one of three things:
- Place the directors back in control; or
- Implement a deed of company arrangement; or
- Put the company into liquidation.
If the creditors vote to place the directors back in control, the voluntary administration ends with the directors regaining power from the voluntary administrator.
If the creditors vote to implement a deed of company arrangement, the directors must sign the agreement within 15 business days. (If they don’t, the company may be put into liquidation.) This also marks the end of the voluntary administration. The company then continues trading – although under strict conditions (as laid out in the deed of company arrangement) and under the oversight of the deed administrator (who is usually the same person as the voluntary administrator).
If the creditors vote to put the company into liquidation, a liquidator is appointed. The voluntary administrator may assume this role, although the creditors may instead choose another person. At this point, the voluntary administration ends. The liquidator will then try to wind up the company in such a way as to deliver the maximum return to creditors.
At the end of the voluntary administration process, the voluntary administrator will lodge a report with ASIC. This report will contain a ledger of the company’s receipts and payments (known as the end of administration return). The voluntary administrator will also notify ASIC of any offences that might have been committed by any of the company’s directors or staff.