Companies In Administration: What It Means And What To Do Next

If a key customer, supplier or even a competitor suddenly goes into administration, it can feel unsettling. Cashflow might be at risk, deliveries could stall, and you’re left wondering what you can do to protect your business.

The good news is you have options. Understanding what “companies in administration” actually means in Australia - and how to respond as a small business - can help you make calm, informed decisions.

In this guide, we’ll explain what administration is, how the process works, the practical steps you can take as a creditor or supplier, and how to reduce risk going forward. We’ll also touch on what to consider if you’re thinking about buying a business out of administration.

What Does “Companies In Administration” Mean In Australia?

When a company is in administration (formally, “voluntary administration”), an independent insolvency practitioner (the administrator) is appointed to take control of the company and assess its options. Their job is to decide whether the company can be saved, whether its business can be sold, or whether it should be wound up.

There’s usually a short, intensive period (often 20-25 business days, sometimes longer if extended by the court or creditors) where the administrator gathers information, stabilises operations, and presents options to creditors. Those options typically include:

• Deed of Company Arrangement (DOCA): A binding deal between the company and its creditors about how debts will be handled and how the business might continue.
• Liquidation: Winding up the company and selling assets to pay creditors in order of priority.
• Return to Directors: Rare, but possible if the company is viable without a formal restructure.

Once administration starts, a “moratorium” usually pauses most enforcement actions against the company. For example, unsecured creditors generally can’t start or continue proceedings to recover debts during administration. Some contract rights may also be paused by the “ipso facto” rules (certain rights to terminate just because of insolvency can be stayed in some situations).

How Does The Administration Process Work (In Plain English)?

Here’s a simple overview of the key steps and what they mean for small businesses dealing with companies in administration:

1) Appointment Of Administrator

The administrator takes control of the company’s affairs and assets. They will quickly communicate with creditors, often via public notices and direct emails.

2) First Creditors’ Meeting

This is a short meeting to confirm the administrator’s appointment and decide whether to form a committee of inspection (a small group of creditors who can consult with the administrator as the process goes on). You can attend and vote if you’re a creditor.

3) Information Gathering And Trading On

The administrator investigates the company’s financial position. The business may continue trading during this time if it’s in creditors’ best interests. You may be asked to continue supplying goods or services - but think carefully about terms, security and risk before agreeing.

4) Administrator’s Report And Second Creditors’ Meeting

The administrator issues a report outlining options and a recommendation (e.g. DOCA, liquidation). Creditors vote. Different creditors have different rights and priorities, and not all will recover the same amounts.

5) Outcome Implemented

If a DOCA is approved, it’s put in place and managedover time. If liquidation is chosen, a liquidator takes over to realise assets and distribute funds.

I’m A Supplier Or Creditor - What Should I Do?

Act promptly but methodically. A few early steps can help you protect your position without burning bridges or breaching the moratorium.

Confirm Your Status And Lodging A Claim

• Identify your legal relationship: Are you an unsecured creditor, secured creditor, employee creditor or landlord? Your status affects your rights and priority.
• Submit a proof of debt: Follow the administrator’s directions to lodge your claim and any supporting documents (invoices, contracts, statements).

Check Contracts For Key Clauses

• Retention of Title (ROT): If your contract says title to goods doesn’t pass until paid, you may reclaim unpaid-for stock that’s identifiable and in good condition, subject to other priorities.
• Set-off, suspension and termination rights: Some may be paused by the ipso facto rules. Ask the administrator before acting on termination rights.
• Security interests: If you registered a security interest on the Personal Property Securities Register (PPSR), you may have priority over certain assets. If you haven’t, now’s the time to review your processes for future customers.

For suppliers who trade on credit, a properly documented retention of title clause paired with a PPSR registration can be a game-changer. For background, it’s worth revisiting what the PPSR is and why PPSR registrations matter in protecting your goods and debts.

Decide Whether To Keep Supplying

Continuing to supply during administration can make commercial sense in some industries, but it carries risk. If you do continue, consider asking for:

• Cash on delivery or shortened payment terms.
• A deposit or prepayment.
• Additional security, such as a director Personal Guarantee (if appropriate) or a Bank Guarantee.
• Written confirmation from the administrator regarding orders and payment arrangements.

Be clear on whether you’re contracting with the administrator (personally) or the company (in administration). Administrators typically aim to avoid personal liability, so you need clarity before agreeing to new terms.

Access And Reclaiming Goods

If you have an ROT clause and a relevant PPSR registration, you can request to collect your goods (if unpaid). This depends on the facts, priorities and any competing security interests. Work cooperatively with the administrator - the process is usually smoother if you can demonstrate the goods are identifiable and quickly removable.

Negotiating A Settlement

Sometimes the practical path is a compromise about past debts and future supply. If you reach an agreement, consider documenting it with a formal Deed of Settlement so the terms are binding and clear (especially around payment schedules, releases and any security).

Can You Keep Supplying A Company In Administration?

Yes, you can - but it’s a commercial and legal risk decision. Some suppliers will tighten payment terms and continue. Others will stop supply until they’re comfortable with proposed arrangements. Consider the following:

• Payment certainty: Will you be paid cash on delivery? Will funds sit in trust? Are there administrator assurances in writing?
• Security: Can you obtain a new PPSR-registrable security interest over future supplies? If so, ensure you actually register the security interest correctly and on time.
• Contract adjustments: Update terms to reflect new risk settings (shorter terms, suspension rights, clearer delivery and title clauses).
• Operational impact: If you cease supply, will that damage your customer relationship long-term, or does it reduce unacceptable risk?

There isn’t a one-size-fits-all answer. The right move depends on margins, the importance of the customer, and the strength of your protections.

How To Reduce Risk Before A Customer Goes Into Administration

Many businesses only review their credit terms after an insolvency scare. Building the right protections into your standard documents from day one can significantly improve your position if a customer later enters administration.

Use Strong Terms Of Trade (And Actually Enforce Them)

• Retention of Title: Make sure your clause is clear and workable in practice.
• Security Interests: Where appropriate, take a security interest and register it on the PPSR promptly to preserve priority.
• Shortened Terms For New Accounts: Consider staged credit limits that increase only after a good repayment history.
• Clear Suspension/Termination Rights: So you can stop supply if invoices fall overdue (subject to ipso facto restrictions if insolvency arises later).

If you rely on credit terms, a PPSR strategy is essential. Revisit the basics of why PPSR matters and how to align your processes so registrations are timely and accurate.

Consider Personal Or Third-Party Security

For higher-risk accounts, you might consider asking for a director’s Personal Guarantee or a Bank Guarantee to support payment obligations. These tools won’t suit every customer, but they can provide extra comfort where appropriate.

Tidy Up Contract Chains

If your revenue depends on the continuity of particular contracts (e.g., subcontracts, exclusive distribution), understand your rights if your counterparty becomes insolvent. Prepare alternatives and ensure your agreements are clear on assignment, step-in and continuity. If you need to transfer obligations later, the upfront structure of your agreements can make an assignment of contracts far easier.

Buying A Business Out Of Administration: Opportunity Or Risk?

Distressed acquisitions can be a savvy way to expand, but they require fast, careful due diligence. In administration, timeframes are tight and information is imperfect - which means a disciplined approach matters.

Focus Your Due Diligence

• Assets And Title: Confirm what you’re actually buying and whether assets are encumbered by security interests.
• Contracts: Identify which key contracts can be assigned and on what terms. Understand landlord consents, change-of-control and termination risks.
• Employees: Consider which employees you’ll take on, the transfer mechanics and the cost implications (entitlements, onboarding, contracts).
• IP And Brand: Confirm ownership and any registered or unregistered rights you need to run the business day to day.
• Compliance Risks: Look for regulatory issues that could follow the business post-acquisition.

Having a clear scope and timeline is critical. If you’re moving quickly on a distressed deal, our team regularly helps with a legal due diligence package so you can prioritise the highest-risk areas first.

Document The Deal Properly

Even in a fast sale, it’s important to document the transfer clearly - whether that’s an asset purchase, a stock and inventory sale, or the acquisition of IP and customer contracts. A tailored Business Purchase Package can cover the purchase agreement, assignment mechanics and key consents, helping you complete with fewer surprises.

Be mindful: if you plan to rely on assigned agreements to serve customers from day one, confirm (in writing) that counterparties consent or that assignment is permitted under the contract.

Key Legal Documents And Clauses To Have In Place

While every business is different, these documents and terms commonly help manage insolvency risk and support your position if a customer goes into administration:

• Terms Of Trade / Terms Of Sale: Core terms governing pricing, delivery, title, payment, suspension and termination.
• Retention Of Title (ROT) Clause: States that title to goods remains with you until full payment - ideally backed by PPSR registrations for priority.
• Security Agreement And PPSR Registration: Lets you take a security interest over goods/accounts and register the security interest to protect your priority position.
• Personal Guarantee: A director or related party guarantees the company’s payment obligations - see our guide to Personal Guarantees for how they work and key risks.
• Bank Guarantee: A bank promises payment if the company doesn’t pay - learn the basics in our Bank Guarantees overview.
• Deed Of Settlement: Records agreed settlements or payment plans, with clear releases and default consequences - see Deed of Settlement.
• Assignment Clauses: Ensure your contracts can be assigned where you need flexibility, and understand the mechanics of assigning contracts if counterparties change.

You may not need all of these on day one, but the right combination - tailored to your business model - can dramatically reduce downside risk if a customer or partner ends up in financial stress.

Key Takeaways

• Companies in administration are run by an independent administrator who assesses whether the business can be saved, sold or wound up.
• As a creditor or supplier, act early: confirm your status, lodge a proof of debt, check your contracts, and decide whether to keep supplying on safer terms.
• Retention of title clauses and timely PPSR registrations can significantly improve your priority position over goods and receivables.
• If you continue to supply, consider cash on delivery, deposits and additional security like Personal Guarantees or Bank Guarantees.
• Strengthen your future position with robust terms of trade, PPSR processes and clear assignment rights in your contracts.
• Buying a business out of administration can be attractive, but focus on targeted due diligence and proper documentation to manage risk.

If you’d like a consultation about dealing with companies in administration or strengthening your contracts and security, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.