Voluntary Administration

Voluntary administration: maximising the chances of business survival


Voluntary administration is a formal procedure whereby an insolvency practitioner is appointed to act as the independent administrator of an insolvent company with the aim of maximising the chances of the business to restructure and continue in existence or where that is not possible, providing a better return to creditors than an immediate winding up.


Is your company able to initiate a Voluntary Administration? Before considering a VA to help turn around your company, you need to determine if your company is suitable for the procedure. Key points to consider are:


  •  The company must be insolvent or likely to become insolvent.
  • The directors and/or shareholders should consider the terms and viability of a DOCA, which if accepted by creditors, will mean the company can avoid liquidation.
  •  The business’ projected cash flow forecasts must indicate it can cover the agreed repayment amounts and frequency or access to other funding services are required.


Benefits of a voluntary administration (VA)


  •  Prevents further action from unsecured creditors, including the ATO.
  •  If done within the required time frame, will avoid personal liability of the directors to the ATO pursuant to a director penality notice.
  •  Provides the best chance of business survival via a DOCA being accepted by creditors in lieu of their debts.
  •  Company directors and shareholders stay informed throughout the procedure.


If a DOCA is accepted, a liquidator does not pursue any potential claims available in a winding up, including insolvent trading, uncommercial transactions and preference payments. The appointment of a VA does not trigger automatic termination as “IPSO Facto” clauses in some types of existing contracts.


The VA process


Broadly speaking, the events that lead up to a successful VA are:


  • The Initial Assessment: The VA process can only start when you contact an insolvency practitioner (IP). The IP will determine whether a VA is the best course of action for your company and its creditors.
  • Appointing an IP: If a VA is recommended and you wish to proceed, then the directors need to pass a resolution to appoint the IP.


Legal actions against your company are stayed: Once the VA commences, any legal actions against your company are halted and no further actions can be taken by unsecured creditors without leave of the Court.


When can a VA be initiated?


A VA can be appointed at any time up until a winding up order is granted against your company. However, directors should consult with an IP at the earliest opportunity to ensure the chances of business survival are maximised. The Courts generally do not look favourably at a VA appointment shortly before a winding up application is to be heard If you’ve already been served with a statutory demand, or your creditors take legal action, you still have time to appoint a VA and save your business. But you must act quickly. Once the winding up order is granted, compulsory liquidation will commence.


What is the cost of a VA?


When setting up a VA, your main expense is the cost of an independent insolvency practitioner to take control of the business, investigate its affairs and assist you to formulate and present the VA proposal to creditors. This fee will vary depending on the amount of work involved and the particulars of your case. Creditors must approve an Administrator’s fees out of the Companys assets or, where insufficient, from contributions from directors and/or shareholders.


Financial Distress Solutions offer highly competitive rates, and we’ve helped countless businesses use VAs to avoid liquidation and achieve a better outcome for stakeholders in the circumstances. Our registered insolvency practitioners have extensive experience acting as Voluntary Administrators. For a free consultation send us an email or call 1300 747 577.