What You Need To Know About Voluntary Administration

If your company is under serious financial pressure, voluntary administration can give you the breathing room to assess your options and try to save the business. It’s a formal process under the Corporations Act designed to protect the company while an independent specialist (the administrator) investigates the position and recommends a path forward.

In this guide, we’ll explain what voluntary administration is, when it’s appropriate, how it works step-by-step, and what it means for directors, creditors, staff and contracts. We’ll also cover common outcomes like a Deed of Company Arrangement (DOCA), how it differs from liquidation, and what to consider if you’re buying or selling a business out of administration.

If you’re worried about solvency, don’t panic - getting clear, early advice can make all the difference. Let’s walk through the essentials so you can make informed decisions.

What Is Voluntary Administration In Australia?

Voluntary administration is a formal insolvency process for companies. The board appoints an external administrator (a registered insolvency practitioner) to take control of the company for a short period, usually a few weeks.

During this time, there’s a moratorium on most creditor enforcement. The administrator investigates the company’s affairs and reports to creditors with options: enter a DOCA, wind up the company (liquidation), or return control to the directors.

The aim is to maximise the chances of the company, or as much of its business as possible, continuing; or if that’s not possible, to provide a better return to creditors than immediate liquidation.

When Should Directors Consider Voluntary Administration?

You should consider voluntary administration if your company is insolvent or likely to become insolvent - that is, it can’t pay its debts as and when they fall due. Common red flags include persistent cash flow shortages, mounting tax arrears, creditor demands, or defaulting on loan covenants.

Directors have duties to act in the best interests of the company and to prevent insolvent trading. If you’re unsure about the company’s ability to meet upcoming liabilities, documenting a board discussion and passing a solvency resolution can focus the board on the issues and your next steps.

Voluntary administration isn’t giving up - it’s a protective mechanism. It buys time to restructure, negotiate with creditors, or package the viable parts of the business in a way that preserves value and jobs.

How The Voluntary Administration Process Works

Here’s a plain-English overview of the typical process under Part 5.3A of the Corporations Act.

1) Appointment Of The Administrator

The board resolves to appoint a registered administrator. From that moment, the administrator takes control of the company, and a moratorium kicks in that restricts most creditor enforcement and some contractual termination rights.

2) First Creditors’ Meeting (Within About 8 Business Days)

The administrator calls a quick meeting so creditors can confirm or change the administrator and consider whether to form a committee of inspection (a small group to consult with the administrator during the process).

3) Investigations And Trading Period

Over the next few weeks, the administrator reviews the company’s financial records, contracts, assets, employee entitlements and claims. They may continue to trade the business if it’s in the creditors’ interests, or pause parts of it to stem losses.

Secured creditors retain certain rights, especially if they hold PPSR-registered security interests. The administrator will engage with them about asset use and any proposed restructuring.

4) Administrator’s Report And Second Meeting (Usually Within 20-25 Business Days)

The administrator provides a detailed report to creditors and recommends one of three outcomes: a DOCA, liquidation, or handing control back to the directors. The “convening period” can be extended by the court if the matter is complex.

5) Creditor Vote On Outcomes

At the second meeting, creditors vote. The decision is made by majority in number and value. If they approve a DOCA, the company proceeds to implement it. If they resolve to wind up, the administration usually ends and the company enters liquidation.

What Happens To Debts, Contracts And Employees?

One of the biggest benefits of voluntary administration is the temporary pause on most enforcement action. Here’s how the key pieces generally work in practice.

Creditor Claims And Enforcement

Most unsecured creditors can’t start or continue enforcement during administration without the administrator’s consent or a court order. Existing proceedings are usually stayed, and statutory demands can’t be issued.

Secured creditors with registered interests (for example, under the PPSR) may still have rights to enforce within limited timeframes, particularly over collateral they hold security over. The administrator often negotiates asset use so the business can keep trading while preserving secured creditors’ position.

Contracts And Ipso Facto Clauses

Since 2018, ipso facto reforms restrict some counterparties from terminating a contract solely because the company has entered administration. Other termination rights (e.g. for non-payment or performance issues) may still be available, and certain types of contracts are excluded from the reforms. In many restructures, the company will later seek assignments or novations of key agreements. In those cases, a Deed of Assignment or a novation agreement can document the transfer properly.

Leases And Landlords

Administrators can decide whether to continue occupying leased premises; rent during administration is usually a priority cost if the premises are used. If the business needs to be rationalised, some locations may be exited to reduce ongoing losses.

Employees And Entitlements

Employees can continue to be employed during administration, and ongoing wages are paid as expenses of the administration. Unpaid pre-appointment wages, leave and superannuation become claims against the company. If a restructure leads to redundancies, it’s important to manage the process lawfully and consider seeking redundancy advice so entitlements are calculated and paid correctly.

If the company later goes into liquidation, outstanding employee entitlements may be eligible for the Commonwealth’s Fair Entitlements Guarantee (FEG), subject to eligibility rules.

Director And Personal Guarantees

Entering administration does not automatically release any director personal guarantees. Creditors can often pursue guarantors separately. It’s wise to review which obligations are guaranteed and to factor this into any restructuring strategy or DOCA proposal.

DOCA Vs Liquidation: Which Outcome Makes Sense?

After the administrator’s investigation, creditors will generally choose between a DOCA, liquidation, or returning the company to directors. Here’s how to think about the two most common outcomes.

Deed Of Company Arrangement (DOCA)

A DOCA is a binding deed between the company and its creditors setting out how debts will be compromised or repaid and how the business will move forward. It might involve a lump-sum contribution from investors, staged payments from future profits, the sale of certain assets, or a sale of the business as a going concern with proceeds paid to creditors.

DOCAs are flexible. The goal is to produce a better return than immediate winding up while preserving as much business value and employment as possible. The terms will specify which claims are compromised, how priority creditors are treated, and what happens if the company defaults on the DOCA.

Liquidation

If creditors resolve to wind up, the company enters liquidation. The liquidator realises assets, investigates transactions (including potential voidable transactions), and distributes funds according to statutory priorities. The company ultimately deregisters.

Liquidation is appropriate when the business is no longer viable, there’s no realistic restructuring path, or when the expected return under a DOCA would be worse than a straightforward winding up.

Directors’ Duties And Personal Risk During Administration

Once an administrator is appointed, they take control of the company’s affairs. Directors remain in office but their powers are suspended for the duration of the administration.

Prior to appointment, directors must be careful about insolvent trading and should actively consider options as soon as solvency concerns arise. Keeping accurate records, minutes and a contemporaneous solvency resolution can help show that reasonable steps were taken in the circumstances.

Remember that director liabilities and personal guarantees are separate to the company’s obligations. Administration pauses most company enforcement but won’t necessarily stop a creditor from enforcing a guarantee, tax director penalty notice or other personal exposure. It’s important to get tailored advice on mitigating these risks early.

Buying Or Selling A Business Out Of Administration

For buyers, acquisitions out of administration can be an opportunity to purchase a viable business at a reduced price. For sellers (the administrator), a going concern sale can maximise returns compared to a break-up sale.

Either way, rigorous legal due diligence is essential. You’ll need to review contracts and licences, PPSR registrations, employee transfers, lease assignments, and any proposed DOCA terms that affect the deal. The sale process typically uses an asset sale rather than a share sale, and tight timelines are common.

If you’re on the buy-side, a structured Business Purchase process with a tailored contract helps allocate risk, deal with retained liabilities, and ensure key consents are obtained quickly so the business can keep trading without disruption.

Key Legal Documents And Practical Next Steps

Every administration is different, but these documents and steps often feature in a well-managed process:

• Directors’ Resolution: a board resolution documenting the decision to appoint an administrator and the reasons (solvency concerns, risk to creditors, etc.).
• Deed documentation: if a DOCA is proposed, the deed sets out contributions, timelines, creditor compromises and default mechanisms.
• Deed of Assignment or novation agreements: used when valuable contracts need to be transferred as part of a restructure or sale.
• Redundancy advice and employee communications: if roles are impacted, ensure entitlements and consultation requirements are handled lawfully.
• PPSR review: check registered security interests, retention of title suppliers and the status of secured assets before any sale or restructuring steps.
• Creditors’ notices and meeting packs: accurate, timely notices are critical for valid creditor decisions and to maintain stakeholder trust.
• Sale documents (if selling): aligned with the restructuring plan, including clear asset schedules, employee transfer terms, and risk allocation.

Two practical tips as you plan next steps:

• Move quickly but keep records. Administration runs to tight statutory timeframes. Clear minutes, financials and contract schedules will help your administrator develop options fast.
• Be realistic and transparent. Creditors are more likely to support a DOCA if assumptions are credible, forecasts are justified, and governance is strong.

Key Takeaways

• Voluntary administration is a short, structured process that pauses most enforcement while an independent expert assesses options to save the business or improve creditor returns.
• Consider administration early if you’re facing insolvency risk - directors must act in the company’s best interests and manage insolvent trading exposure.
• During administration, unsecured enforcement is largely stayed; secured creditors and PPSR-registered interests require careful engagement, and ipso facto laws limit some contract terminations.
• A DOCA can compromise debts and preserve value and jobs if the business is viable; liquidation is appropriate when a restructure won’t deliver a better outcome.
• Directors’ personal exposure (including personal guarantees) needs separate attention, as administration doesn’t automatically release guarantors.
• If buying or selling in administration, tight timelines and careful legal due diligence are critical to a clean, value-preserving transaction.
• Have the right documents ready - from a Directors’ Resolution to DOCA terms and any required Deed of Assignment - so decisions can be made quickly and lawfully.

If you’d like a consultation about voluntary administration or restructuring options for your company, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.