Voluntary Administration

VOLUNTARY ADMINISTRATION

Under the Corporations Law, the board of directors of a company may appoint an administrator to take control of a company when it is or will become insolvent (reference to Chapter 5 of the Corporations Act 2001).  The appointed administrator will take full control of the company to try to work out a way to save either the company or its business.  The aim is to administer the affairs of the company in a way that results in a better return to creditors than they would have received if the company had instead been placed straight into liquidation.  In doing so, the administrator tries to assess the company’s problem, work out and propose solutions, the creditors’ meeting will be held to decide on the best option for the company’s future.

The options are:

  • end the voluntary administration and return the company to the directors’ control
  • approve a deed of company arrangement (if one is proposed)
  • wind up the company and appoint a liquidator

 

The administrator will act as the company’s agent, deal with company’s property and to restrict third party from exercising property rights.  Any enforcement process will be suspended until a decision is made as to the future of the company, such as:

  • unsecured creditors can’t begin, continue or enforce their claims against the company without the administrator’s consent or the court’s permission;
  • owners of property (other than perishable property) used or occupied by the company, or people who lease such property to the company, can’t recover their property;
  • except in limited circumstances, secured creditor can’t enforce their security interest in the company’s assets;
  • a court application to put the company in liquidation can’t be commenced;
  • a creditor holding a personal guarantee from the company’s director or other person can’t act under the personal guarantee without the court’s consent.

 

The voluntary administration process

Steps   Actions Relevant Provision under the Corporations Act 2001 
Meeting of the Board of Directors The Board of Directors reach a resolution to appoint and determine a voluntary administer for the company. s436A
Appointment of voluntary administrator The voluntary administrator begins on the appointment date of the voluntary administrator. s435C
First meeting of creditors The voluntary administrator must hold the first meeting of creditors within eight business days being appointed, unless the court allows an extension of time.

The administrator must convene the meeting by (a) giving written notice of the meeting to as many of the company’s creditors as reasonably practicable; and (b) causing a notice setting out the prescribed information about the meeting to be published in the prescribed manner; at least 5 business days before the meeting

 

s436E
Voluntary administrator’s investigation and report The voluntary administrator must investigate the company’s affairs and report to creditor on alternatives. s438A
Second meeting of creditors – meeting to decide company’s future The voluntary administrator must hold the meeting to decide the company’s future within 25 business days of being appointed (or 30 business days if the appointment is around Christmas or Easter), unless the court allows an extension of time. s439A
Creditors can decide at the meeting to:

  • return the company to the control of the directors;
  • accept a deed of company arrangement (the deed must be signed by the company within 15 business days following the meeting, unless the court allows an extension of time), or
  • put the company into liquidation (this happens immediately, and the administrator becomes the liquidator).
s439C
The administrator must send creditors the following documents at least 5 business days before the meeting:

  • a notice of meeting
  • the voluntary administrator’s report
  • the voluntary administrator’s statement.

 

The meeting must also be advertised on ASIC’s published notices website.

 

Company returned to directors

If the company is returned to the directors, they will be responsible for ensuing that the company pays its outstanding debts as they fall due.  It is only in very rate circumstances that creditors will resolve to return the company to the control of its directions.

Liquidation

If creditors resolve that the company go into liquidation, the voluntary administrator becomes the liquidator unless creditors vote at the second meeting to appoint a different liquidator of thie choice.  The liquidation proceeds as a creditor’s voluntary liquidation with any payments of dividends to creditors made in the order set out in the Corporations Act 2001.

Deed of company arrangement

If creditors vote for entering a deed of company arrangement, the company must sign the deed within 15 business days of the creditors’ meeting, unless the court allows a longer time.  If this doesn’t happen, the company will automatically go into liquidation, with the voluntary administrator becoming the liquidator. (s444B)

The deed of company arrangement binds all unsecured creditors, even it they voted against the proposal.  (s444D) The deed must ensure employee entitlements are paid in priority to other unsecured creditors unless eligible employees have agreed to vary their priority.

 

IMPORTANT NOTICE:  The above information are the general  information with reference from the Corporations Act 2001 and ASIC website.  More information is available at the ASIC website and the Australian Restructuring Insolvency & Turnaround Association website.