Alex is Sprintlaw's co-founder and principal lawyer. Alex previously worked at a top-tier firm as a lawyer specialising in technology and media contracts, and founded a digital agency which he sold in 2015.
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When cashflow tightens and debts stack up, many directors ask a tough question: is voluntary administration the right step to protect the business and its stakeholders?
It can feel daunting, but voluntary administration (VA) is designed to give viable companies breathing room while an independent expert assesses the best path forward. In many cases, it creates a genuine second chance.
In this guide, we’ll explain what voluntary administration is, how it works in Australia, what it means for directors, employees and creditors, and practical steps to navigate the process confidently.
What Is Voluntary Administration?
Voluntary administration is a process under the Corporations Act in which an independent insolvency practitioner (the administrator) takes control of a financially distressed company for a short period.
The administrator’s job is to investigate the company’s affairs and report to creditors on three options:
- End the administration and return control to the directors
- Approve a Deed of Company Arrangement (DOCA) to restructure debts and keep operating
- Place the company into liquidation
The goal is to maximise the chances of the company or its business continuing, or, if that isn’t reasonable, to achieve a better return for creditors than an immediate winding up.
When the company enters VA, there is a temporary “moratorium” that pauses most enforcement actions by unsecured creditors and some secured creditors. This breathing space is often what’s needed to put a realistic proposal to creditors and salvage value.
When Should Directors Consider Voluntary Administration?
Directors have a legal duty to prevent insolvent trading. If the company can’t pay debts as they fall due, acting early is critical. Warning signs include:
- Consistent late payments to suppliers, ATO or staff
- Overdue BAS or superannuation
- Maxed-out facilities and persistent cashflow gaps
- Creditor demands, statutory demands or legal threats
- Concern that trading on will worsen the position of creditors
There’s no single trigger, but if solvency is in doubt, directors should get advice promptly. Understanding duties and protections-such as the business judgment rule-helps you make informed decisions in real time. For background on that protection, see the business judgment rule under section 180(2).
Directors can also consider the company’s formal financial position and, if needed, pass a board solvency resolution to help demonstrate they are actively monitoring solvency. If the picture is deteriorating and restructuring outside of a formal process isn’t feasible, VA may be the most responsible course of action.
How Does The Voluntary Administration Process Work?
Although every business is different, voluntary administration generally follows a predictable pathway with short, legally defined timeframes.
1) Board Decision And Appointment
The board resolves to appoint a voluntary administrator. An independent registered liquidator is appointed and immediately takes control of the company. From that moment, directors’ powers are suspended and the moratorium on most creditor actions begins.
2) First Creditors’ Meeting (Within 8 Business Days)
The administrator must convene the first meeting quickly. Creditors confirm or replace the administrator and decide whether to form a committee of inspection (a small group that liaises with the administrator during the process).
3) Administrator’s Investigations
The administrator investigates the company’s financial affairs, contracts and prospects. They also consider restructuring options and liaise with directors and potential investors to develop a proposal where viable.
During this period, the business often continues to trade under the administrator, preserving value and relationships if it’s in creditors’ interests to do so.
4) Report To Creditors And Second Meeting (Usually Within 25-30 Business Days)
The administrator issues a detailed report and recommendation, and a second meeting is called. Creditors vote on one of three outcomes:
- End the administration and return control to directors
- Approve a DOCA (a binding restructuring plan)
- Liquidate the company
Deadlines can be extended by court order or creditor resolution in complex cases, but the default intent is speed and certainty.
5) If A DOCA Is Approved
The company and creditors are bound by the DOCA, which sets out how debts will be compromised, paid or otherwise dealt with (for example, through staged payments funded by future profits or a third-party contribution). Control of the company usually returns to directors, subject to the DOCA’s terms and ongoing oversight by the deed administrator.
What Happens To Directors, Employees And Creditors During VA?
VA affects stakeholder rights differently. Understanding these impacts helps you plan and communicate clearly.
Directors
Directors remain in office but hand control to the administrator. They must assist with information and records, but are generally relieved from making day-to-day trading decisions during VA.
Directors should be mindful of personal exposure under any personal guarantees (for example, securing leases, equipment finance or supplier accounts). The moratorium does not necessarily stop enforcement of personal guarantees, so it’s important to understand your position.
Employees
Employees are often retained during VA if the business continues trading. Wages and super accrued after the administrator’s appointment are generally given priority in the administration. Pre-appointment employee entitlements become creditor claims and receive certain priorities if there’s a distribution.
If redundancies are required, normal employment law and entitlements still apply. Where staff changes are contemplated, ensure you have appropriate processes and documentation in place (such as an Employment Contract for ongoing staff).
Unsecured Creditors
Unsecured creditors are bound by the moratorium and can’t enforce most claims during VA. They’ll have a chance to vote at meetings and, if a DOCA is proposed, to accept or reject it based on the expected return versus liquidation.
Secured Creditors
Secured creditors may still enforce their security in some circumstances, particularly within the initial “decision period” (shortly after the appointment). Many secured creditors choose to work with the administrator if a DOCA may yield a better result.
Landlords And Lessors
Administrators may continue to use leased premises and equipment while they decide whether to retain or disclaim the contracts. Rent during this period is typically treated as an expense of the administration.
Customers And Key Contracts
Administrators assess key contracts and supplier arrangements. Some contracts have “ipso facto” clauses that purport to terminate on insolvency-Australian reforms limit the enforceability of certain ipso facto rights during VA, supporting business continuity where possible.
DOCA, Liquidation Or Hand-Back: Which Outcome Is Best?
The right outcome depends on viability and creditor support. The administrator’s recommendation will weigh commercial and legal factors based on investigations and proposals received.
Deed Of Company Arrangement (DOCA)
A DOCA is a binding agreement between the company and its creditors. It’s a form of deed, so execution formalities matter. If you’re new to deeds in Australian law, it may help to refresh what a Deed is and how it differs from a standard contract.
DOCAs are flexible. Common features include:
- Part payment of debts over time (with the balance compromised)
- Third-party contributions (for example, from investors or related entities)
- Asset sales to fund distributions
- Operational changes to restore profitability
If the DOCA is completed, claims dealt with under it are finalised and the company emerges with a clean slate (subject to the terms). If it fails, liquidation is the typical next step.
Liquidation
If creditors resolve to wind up the company, a liquidator is appointed to realise assets and distribute funds according to priorities. Liquidation ends the company’s existence after the process is completed. This outcome is often chosen where no viable proposal exists or where immediate realisation delivers a better return.
Return Control To Directors
In relatively rare cases-such as when solvency is restored quickly-creditors may vote to end VA and hand control back to directors without a DOCA. This usually requires clear evidence that debts can be paid and normal trading can resume responsibly.
Key Legal And Compliance Considerations
Even in a formal process like VA, your broader legal framework influences risk and outcomes. Here are important considerations to keep in mind.
Directors’ Duties And Insolvent Trading
Directors have ongoing duties to act in good faith and in the best interests of the company, and to avoid insolvent trading. Entering VA promptly can be part of meeting those duties, especially if a DOCA could produce a better result for creditors than immediate liquidation.
Understanding governance rules in your Company Constitution and any board procedures helps you document decisions and show a clear, reasoned approach. Where multiple founders are involved, a Shareholders Agreement can also set decision-making processes for major events like restructuring.
PPSR And Secured Transactions
Many suppliers and lenders register security interests on the Personal Property Securities Register (PPSR). Properly perfected security changes the order in which parties are paid and how assets are dealt with in VA. If your business supplies goods on retention of title terms, it’s worth reviewing how the PPSR works and whether your securities are correctly registered.
Personal Guarantees
Directors often provide personal guarantees for leases, finance or supplier accounts. VA doesn’t automatically stop enforcement of guarantees, so directors should assess exposure early and engage with guarantee holders. See our plain-English guide to Personal Guarantees for common risks.
Key Contracts And Ipso Facto Protections
Review major contracts for insolvency-triggered clauses and change-of-control provisions. Some ipso facto rights are stayed during VA, but not all. Administrators will typically triage which contracts to keep, renegotiate or disclaim, balancing operational needs against creditor returns.
Employee Entitlements And HR Compliance
Administrators must account for employee entitlements. If the business continues to trade through VA or under a DOCA, ensure your employment framework is in order (for example, up-to-date Employment Contracts and policies) to minimise disruption and risk.
Communication And Stakeholder Management
Clear, consistent communications with staff, customers, suppliers and financiers can preserve value and stabilise operations during VA. Administrators typically lead this, but directors and management play an important supporting role.
Board Process And Record-Keeping
Document the rationale for key decisions and keep accurate records. Using a practical Directors’ Resolution template for major steps can help evidence appropriate governance throughout the process.
Practical Steps To Prepare For Or Navigate Voluntary Administration
If VA is on the cards-or you want to be ready if conditions worsen-these steps can make the process smoother and protect value.
1) Get A Clear Picture Of Cash And Commitments
Pull together bank statements, aged payables/receivables, payroll, tax lodgements and major contracts. Administrators move fast and rely on accurate data to assess options.
2) Map Your Security Landscape
List secured creditors, guarantees, and PPSR registrations over your assets (and, if you’re a supplier, over your customers’ assets). Knowing who ranks where helps shape realistic proposals.
3) Identify Critical Contracts And Relationships
Flag essential suppliers, key customers, landlords and licensors. Consider what trading terms might be renegotiated during VA to keep operations running while a proposal is developed.
4) Consider The Shape Of A DOCA
Think practically about what your business can fund. Could there be a lump-sum contribution from a third party, staged payments from profits, asset sales, or a mix? The more grounded and fair your proposal, the more likely creditors will support it.
5) Keep Staff In The Loop
Employees are often your biggest advocates. Honest, timely updates reduce uncertainty and help maintain continuity. Understand entitlements and priorities so you can answer common questions confidently.
6) Maintain Governance Discipline
Meet regularly, minute decisions and seek advice as needed. A sound decision-making process-aligned with the business judgment rule under section 180(2)-supports directors in fast-moving situations.
7) Protect And Prioritise Value
Focus on profitable lines, customer relationships and contracts that underpin a viable future. If you’re a supplier, ensure your security interests are validly perfected on the PPSR to preserve your position.
Frequently Asked Questions About Voluntary Administration
Will I Lose My Business If I Enter VA?
Not necessarily. VA is designed to preserve value. Many companies exit VA under a DOCA and continue trading. The outcome depends on the business’s underlying viability and creditor support.
How Long Does VA Take?
VA is meant to be quick-typically 25-30 business days to the second meeting (though it can be extended). The intent is to deliver timely certainty for stakeholders.
Can I Keep Trading During VA?
Often, yes. Administrators may continue trading if it benefits creditors overall. This can stabilise the business while a restructuring plan is prepared.
What’s The Difference Between VA And Liquidation?
VA is a short-term, investigative and restructuring process. Liquidation is about winding up and distributing assets. VA can lead to a DOCA that saves the business, whereas liquidation ends it.
What If We Have Multiple Founders?
Founders should align on objectives and decision-making quickly. Having a clear Shareholders Agreement can reduce friction at critical moments, including when considering VA or a DOCA.
Key Takeaways
- Voluntary administration gives distressed companies a short, structured window to assess options and present a plan to creditors.
- The process is fast: an administrator takes control, investigates, and creditors vote to return control, approve a DOCA or liquidate.
- Directors should act early if solvency is in doubt-this helps meet duties and may preserve restructuring options.
- A DOCA is a flexible deed that can compromise debts and allow the business to continue under agreed terms.
- Stakeholder management is crucial: understand the position of employees, secured and unsecured creditors, landlords and customers.
- Governance, PPSR security, personal guarantees and contract rights all influence outcomes-get your documentation and records in order.
- Clear data, realistic proposals and strong communication significantly improve the chances of creditor support.
If you’d like a consultation on voluntary administration or DOCA options for your company in Australia, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
