- The Voluntary Administration process provides for the business, property and affairs of an insolvent or nearly insolvent company to be administered in a way that maximises the chances of the company continuing to operate.
- The process usually lasts for up to 30 business days.
- Voluntary administration ends when either the Deed of Company Arrangement is executed, or the creditors resolve for the administration to end or the company be wound up.
Voluntary Administration Process
Voluntary administration is an insolvency process that allows a company that is experiencing cash flow or solvency problems to appoint an external administrator to manage the company’s assets while it restructures to avoid liquidation. Unlike winding up procedures, voluntary administration maximises the chances of a business to continue to exist. The procedure is established and governed by the Corporations Act 2001 (Cth). When a company is in voluntary administration, it must advertise its status with “(Administrators Appointed)” after its business name.
The voluntary administration process usually takes 25-30 business days, where an appointed administrator takes control of the company and meets with creditors to determine the distribution of the company’s assets. There are usually two meetings – the first held within eight business days and the second four to six weeks after the appointment. During this process, directors have no authority to deal with any of the assets or perform any management function without the consent of the administrator. The aim of the voluntary administration process is to grant the company time to restructure without having to deal with the demands of creditors, landlords and suppliers.
- Who are the secured creditors? Secured creditors (also known as a secured party) is any party holding a security interest of assets of the company.
- Look for the indicators of insolvency: Overdue taxes, liquidity ratios below 1, continuing losses, no access to alternative finance or inability to raise further equity capital.
- There are a number of effects on all stakeholders in the voluntary administration process. Remember that all action to recover debt or possess assets is frozen.
The voluntary administration process can be activated quickly and is of relatively short duration.
Effects of Voluntary Administration
The voluntary administrator must pay dividends in the order of priorities set out in section 556 of the Corporations Act (Cth).
For secured creditors, they have 13 business days to exercise their security; otherwise, they are bound by a moratorium for the duration of the voluntary administration period. Except in limited circumstances, secured creditors cannot enforce their charge over company property. For unsecured creditors, there is a moratorium in place which restricts their claims. They are unable to enforce any claim without the administrator’s consent or the court’s permission.
Creditors can pass a resolution to either accept a proposal for a Deed of Company Arrangement (if one is proposed) or ending the voluntary administration and passing control of the company back to the directors. Creditors can also choose to liquidate the company.
Landlords and owners of property used or occupied by the company cannot recover their property. You cannot take action to evict the administrator of the company unless the action has already commenced.
Voluntary administrators must pay out of the assets available to ongoing employee wages and other employee entitlements. The voluntary administrator adopts the employment contracts or enters into new contracts of employment with employees.
Frequently Asked Questions about Voluntary Administration
Q: What are the powers of the administrators?
A: The administrator has the power to control the company’s business, property and affairs, terminate or dispose of all or part of the business and perform any function the company of its directors could perform. The directors and other officers lose all of these powers.
Q: When will a voluntary termination end?
A: It will end when a deed of company arrangement is executed or when creditors resolve that the administration should end or liquidate the company
Q: How can a vote be cast at a creditors’ meeting?
A: To vote at a creditors’ meeting, details must be lodged of the creditor’s debt or claim with the voluntary administrator.
Q: What is a Deed of Company Arrangement?
A: A deed of company arrangement (DOCA) is an agreement that binds all unsecured creditors and releases the company from its debts incurred prior to the appoint of the voluntary administrator. This is one of the options at the second meeting of creditors.
Q: What is the difference between voluntary administration and a receivership?
A: A receivership is where a secured party or bank appoints a receiver to recover assets on its behalf. A receiver does not represent all creditors, unlike an administrator who represents all creditors’ interests.
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