Within Australia, Voluntary Administration is a process where an insolvent company is placed in the hands of an independent person, the Voluntary Administrator, whose role is to investigate the company’s affairs, report to creditors and recommened to creditors whether the company should enter into a Deed of Company Arrangement (DOCA), Company Liquidation or be returned to the directors’ control.
Unlike Company Liquidation, Voluntary Administration’s primary objective is to allow a better return to the creditors and save the business, whereas the objective of Company Liquidation is to wind up its affairs and bring it to an end.
Why Should You Enter Voluntary Administration?
Voluntary Administration provides much-needed breathing room for companies in financial difficulty. During the Voluntary Administration period, your creditors must stop their collection activities. Your Administrator will also look at your company structure to see if it can be saved. The Administrator might find the company is heading towards insolvency.
If the company is only in short-term financial trouble, Voluntary Administration is the best solution for you.
How is Voluntary Administration Started?
To enter Voluntary Administration, the directors of the company must pass a resolution in a board meeting. They must then present the vote in writing and appoint a Voluntary Administrator.
What is the Voluntary Administration Process?
- The Voluntary Administration process starts when a company is facing financial difficulties and makes the decision to enter Voluntary Administration – this must be in writing and initiated by a secured creditor, a company director, or by the court.
- An independent Voluntary Administrator is then appointed to the company. They secure all assets of the business to identify its financial status.
- A meeting of creditors is then held which provides the opportunity to vote for a replacement Voluntary Administrator and/or create a committee to oversee the admission process.
- The Voluntary Administrator will conduct research into the company’s finances and affairs with the required assistance from the director. With this research, the Voluntary Administrator will create a report with a detailed analysis on the company’s affairs.
- A second meeting of creditors is called where the Voluntary Administrator puts forward recommendations as to the company’s future. This is where creditors vote on the recommendations.
- The last step in the Voluntary Administration process is determined by the votes in the second meeting of creditors. The Voluntary Administration may end in one of three ways:
- Returning control of the company back to the directors,
- A Deed of Company Arrangement (DOCA) being agreed upon, or
- The company being placed into Liquidation.
How Long Does Voluntary Administration Last?
The Voluntary Administrator must submit their report to the creditors five weeks from the date of their appointment. For more complicated cases, this timeframe can be extended.
How Much Does Voluntary Administration Cost?
Each Administration is different, so there is no one answer. The cost of the Voluntary Administration will depend on many factors, including:
- The size of the company,
- The complexity of the financial hardship,
- The number and type of creditors, and
- The work that needs to be performed.
Does Voluntary Administration Help Protect a Company Director?
Yes. The director of a company in financial distress may face severe penalties imposed by the Australian Taxation Office (ATO) such as Director Penalty Notice (DPN) if the company continues to trade while insolvent – unless the Voluntary Administration process has been initiated.
The director of an insolvent company may be held personally liable for the company’s tax if a Voluntary Administrator or Liquidator is not appointed.
What is the Voluntary Administrator’s Role?
Once appointed, the Voluntary Administrator will:
- Take control of the company’s business and continue trading it where appropriate,
- Report to creditors and provide information about the process and their rights, deal with their queries and calculate the amount of their claims against the company,
- Help the directors assess the options available to the company, including any DOCA proposal the directors wish to submit,
- Conduct detailed investigations into the company’s affairs and the likely outcome for creditors in liquidation from the realisation of company assets and recovery of legal claims,
- Provide a detailed report to creditors on the administrator’s investigations, the likely outcomes for creditors in liquidation and under any DOCA proposal, and which option the administrator recommends creditors to accept. This report is required to be issued within 20 business days of the Administrator’s appointment,
- Hold a meeting of creditors in order for creditors to vote on whether to accept the DOCA proposal or place the company in liquidation. This meeting is required to be held within 25 business days of the Administrator’s appointment, and
- Depending on which option creditors vote for, the administrator will then become the DOCA administrator or the liquidator.
What is a Deed of Company Arrangement (DOCA)?
During Voluntary Administration, a Deed of Company Arrangement (DOCA) is generally presented to help the company avoid Company Liquidation and continue operating. A DOCA is a binding agreement between the company and its creditors which sets out how the affairs and assets of the company will be delt with moving forward. This includes how creditors will be paid. A DOCA is seen as a positive result of a Voluntary Administration and produces a better outcome for all parties, rather than placing the company into Liquidation.
What Happens Once a DOCA is Agreed Upon?
If creditors accept a DOCA, the company must sign the deed within 15 business days of the second meeting of creditors. A DOCA binds all unsecured creditors, even if they voted against the proposal. If the deed is not signed within the timeframe, the company will automatically go into Liquidation where the appointed Voluntary Administrator becomes the Liquidator.
Once the DOCA is executed, the Voluntary Administration ends and becomes a Deed Administration that is governed by the DOCA. A DOCA allws for the full and final settlement of debts, even if the debts aren’t paid in full. The DOCA is terminated after the company has completed the final payment. From this point on, the company continues as a solvent company and moves on from the Voluntary Administration.
Get in Touch with Voluntary Administration Experts Today
If your business is struggling financially, Voluntary Administration can help determine the viability of the business moving forward and get its finances back on track. Get in touch with our expert team today for a free 30-minute consultation.