Voluntary administration: what it is, how it works and how long it takes

Voluntary administration (VA) is a formal insolvency process. An independent registered liquidator, the voluntary administrator, takes control of a company that is insolvent or likely to become insolvent. The aim is to save the company or its business or, if that isn’t possible, to give creditors a better return than an immediate liquidation. Creditors decide the company’s future at a meeting held about five weeks after the appointment.

What is voluntary administration?

ARITA describes the purpose of voluntary administration as rescuing, if possible, a company in financial difficulty. The administrator takes control of the company and manages its affairs until the creditors decide its fate.

A voluntary administrator can be appointed by:

• the company’s directors, after they resolve that the company is insolvent or likely to become insolvent
• a liquidator of the company
• a secured creditor with security over all, or substantially all, of the company’s property.

Once the administrator is appointed, the directors lose control of the company. They must still help the administrator, however, by handing over the company’s books, records and property.

The voluntary administration process and timeline

1. Appointment (day 0). The administrator takes control of the company, its business and its property.
2. Directors’ report (within 5 business days). The directors give the administrator a report on company activities and property (ROCAP), together with the books and records.
3. First creditors’ meeting (within 8 business days). Creditors get at least 5 business days’ notice. At this meeting they can decide whether to replace the administrator.
4. Investigation and report. The administrator investigates the company’s business, property, affairs and financial circumstances. The report sets out the options and compares them with what creditors would likely receive in a liquidation.
5. Second creditors’ meeting (within 25 business days, or 30 around Christmas and Easter). Creditors vote on the company’s future. The court can extend this period, for example when a sale or a proposal needs more time.

How long does voluntary administration take?

Most voluntary administrations reach the creditors’ decision about five weeks (25 business days) after the appointment. The court can extend that period. If creditors approve a deed of company arrangement (DOCA), the deed then runs for the period it sets out. If creditors choose liquidation instead, the liquidator takes over from that point.

What happens during voluntary administration

• Creditors: unsecured creditors can’t start or continue recovery action against the company while it is in administration.
• Personal guarantees: a creditor holding a personal guarantee from a director can’t act on it without the court’s consent while the administration continues.
• Leased and owned property: owners and lessors can’t recover property the company uses (other than perishable property). Within 5 business days, the administrator tells them whether the company will keep using it.
• Employees: if the business keeps trading, the administrator pays employees for work done after the appointment. Outstanding entitlements are not usually paid during the administration; when and how they are paid depends on the creditors’ decision. The Fair Entitlements Guarantee (FEG) is only available if the company goes into liquidation.
• Director penalty notices: if you have received a non-lockdown director penalty notice, appointing an administrator within the 21 days remits that penalty. See our DPN guide.

Two questions directors and staff ask most often have their own pages: what happens to employees in voluntary administration and what happens after voluntary administration.

The three possible outcomes

At the second meeting, creditors decide to:

1. return the company to the directors’ control
2. approve a deed of company arrangement (DOCA), or
3. wind up the company and appoint a liquidator.

A DOCA is a binding agreement between the company and its creditors about how the company’s affairs will be dealt with. It binds all unsecured creditors, even those who voted against it. Secured creditors and property owners are bound only if they voted for it, unless the court orders otherwise. In a DOCA, employees keep the same priority for outstanding entitlements that they would have in a liquidation, unless a majority of eligible employees, in both number and value, agree to change it.

For what each outcome means for directors, guarantees and timing, see what happens after voluntary administration.

Voluntary administration vs liquidation

For a fuller side-by-side comparison, see voluntary administration vs liquidation.

If your company owes $1 million or less, small business restructuring (SBR) may also be an option, and the directors stay in control during that process.

Is voluntary administration right for your company?

Voluntary administration can suit a company that has a viable business but can’t pay its debts as they fall due, particularly when creditors are taking recovery action or a director penalty notice has arrived. The earlier you get advice, the more options you usually have. We can go through your company’s position in a confidential first conversation and explain whether VA, SBR, a payment arrangement or liquidation fits best.

How Greengate helps

Our registered liquidators act as voluntary administrators for small and medium businesses in Sydney, Brisbane and across Australia. We explain each step in plain English, Mandarin, Cantonese or Korean. Examples of our voluntary administration work:

• NDIS provider with more than 60 employees and 100 participants: voluntary administration followed by a deed of company arrangement funded from trading profits
• Franchise network: voluntary administration followed by a deed of company arrangement
• Subsidiaries of an ASX listed company: voluntary administration followed by liquidation
• Australian subsidiary owned by a foreign entity: voluntary administration followed by liquidation

Who can help in Sydney and Brisbane

Greengate Advisory is an Australian restructuring and insolvency firm led by registered liquidators. We advise company directors on voluntary administration, and our registered liquidators act as voluntary administrators. Our offices are in Sydney (Suite 2, Level 32, 31 Market Street, Sydney NSW 2000, (02) 8318 3699) and Brisbane (Suite 5GB, Level 5, 199 George Street, Brisbane QLD 4000, (07) 3868 1888), and we act for companies across Australia. The first consultation is free and confidential, in English, Mandarin, Cantonese or Korean. Contact us or email info@ggadvisory.com.au.

Related guides

• Can’t pay your debts? See which deadlines are running and how the options compare.
• Safe harbour: how directors are protected while they pursue a genuine turnaround.
• Insolvent trading: when directors become personally liable for company debts, and the defences.
• Your options: every guide, grouped by the situation you are facing.

If unpaid tax is the pressure behind the appointment, see ATO tax debt.

Common questions

What is voluntary administration?

A formal process in which an independent administrator takes control of an insolvent, or nearly insolvent, company. The goal is to save the company or its business, or to get creditors a better return than an immediate liquidation.

How long does voluntary administration take?

Creditors usually decide the company’s future about 25 business days (about five weeks) after the appointment, or 30 business days around Christmas and Easter. The court can extend this.

Is voluntary administration the same as liquidation?

No. Voluntary administration aims to save the company or its business, and creditors then vote on its future. Liquidation ends the company. A voluntary administration can end in liquidation if creditors vote for it.

What happens to employees in voluntary administration?

If the business keeps trading, employees are paid for work done after the appointment. Outstanding entitlements depend on the outcome, and the Fair Entitlements Guarantee is only available if the company goes into liquidation. Read our guide for employees.

Who can appoint a voluntary administrator?

The directors, a liquidator, or a secured creditor with security over all or substantially all of the company’s property.

What happens to my personal guarantees?

While the company is in administration, a creditor can’t act on a personal guarantee from a director without the court’s consent. The guarantee is not cancelled, so get advice early.

This page is general information, not advice about your situation. Sources: ASIC Voluntary administration: a guide for creditors, a guide for employees and Insolvency for directors; ARITA Insolvency and company directors.