Voluntary administration
Preserving an operating business or maximising value with voluntary administration
Voluntary administration (VA) provides a company facing financial distress with protection from creditors and breathing space for an independent administrator to create a plan that preserves value whilst protecting the interests of creditors and employees.
At KordaMentha, we assist companies facing distress through this process to provide directors, employees and creditors with clarity, independence and a focus on outcomes that count.
What is voluntary administration?
Voluntary administration (VA) is a formal insolvency process provided by Part 5.3A of the Corporations Act in Australia designed to help companies in financial difficulty. Per Section 435A, the objective of VA is to maximise the chance of the business continuing in existence, or if this is not possible to provide a better outcome than an immediate liquidation of the company.
A company is placed into VA when its directors believe the company is insolvent or likely to become insolvent and appoint a voluntary administrator to take control and run the company during the VA process. Whilst the voluntary administrators will often work with directors an existing management, they are independent and act for all creditors.
During the VA period the ability of creditors to take enforcement action against the company is restricted which allows the administrators to review its position and develop a recommendation for creditors. At the second creditors meeting, typically held within 28 days of appointment, the creditors vote on the future of the company.
The two most common options for a company include:
- The creditors voting to accept a Deed of Company Arrangement (DOCA) – this is a flexible arrangement that may include the sale of profitable assets or the closure of unprofitable parts of the business or
- The company being placed into liquidation where its assets are realised and potential breaches of the Corporations Act or unfair disposal of assets are investigated.
When is voluntary administration the right option?
Directors have a duty to ensure that a company does not trade whilst it is insolvent. If the directors believe that the company is insolvent (meaning that it is unable to pay its debts as and when they fall due) or likely to become insolvent, then they can appoint a voluntary administrator.
Voluntary administration is the right option when directors need to take action quickly and believe that:
- a viable business exists, but some restructuring actions such as disclaiming unprofitable contracts or closing unprofitable sites to reduce costs are required
- the value of the company’s assets will be preserved through a going concern sale facilitated by the voluntary administration; or
- the company’s liabilities exceed its assets and a sale through a voluntary administration is required to allow the sale to continue without the risk of claims be creditors.
By appointing a voluntary administrator directors are protected from any future insolvent trading and the resulting personal liability. In addition, appointing a voluntary administrator is a defence for a director receiving a Director’s Penalty Notice from the Australian Taxation Office.
What is a Deed of Company Arrangement?
A Deed of Company Arrangement (DOCA) is a flexible agreement that binds all unsecured creditors once approved by a majority in number and value. It sets out how the company’s assets will be managed and how creditors will be paid.
A DOCA can be proposed by directors, shareholders, creditors or a third party, and there are few restrictions on its terms. It can allow a business to retain profitable operations while exiting unprofitable ones and manage liabilities accordingly.
The arrangement can include separate pools for different creditor classes and may establish a creditors’ trust, enabling the company to exit VA quickly – a common approach for listed companies seeking speed.
The key requirement is that the DOCA delivers a better return to creditors than liquidation, usually measured by the financial outcome under the proposal.
The main benefits of a DOCA include:
- Allowing the business to continue trading.
- Providing a better return to creditors than immediate liquidation.
- Flexible arrangement that required at least 50% of unsecured creditors (in value and number) to bind all unsecured creditors.
What this means for stakeholders
VA affects more than just the company; there are implications for everyone involved. Understanding these impacts helps stakeholders prepare for what’s ahead. Here is what VA could mean for key stakeholders:
Directors and boards:
Directors are relieved of day-to-day control, and their powers are suspended during the VA period. However, they often remain involved to assist the voluntary administrators to facilitate the smooth operation of the company and achieve the best outcome for employees and creditors. A timely VA mitigates the risk of insolvent trading risks and associated personal liabilities.
Learn more about director support and safe harbour.
Employees:
Section 556 of the Corporations Act provides employees with a priority over unsecured creditors and secured creditors with security over circulating assets. This protection reflects the heavy cost that corporate distress often has on employees.
Whilst each administration is different, employees will often be retained to allow a going concern sale to be achieved.
Clear communication, either directly with employees or through their Unions, and a structured approach is critical to maintaining stability and achieve an outcome that maintains jobs and employee entitlements.
See examples of how we have worked with companies.
Creditors and lenders:
A voluntary administrator acts for all creditors to maximise value; creditors play a pivotal role in the process with their vote at the second creditors meeting deciding the fate of the company.
How we help
With a proven track record on Australia and the region’s most complex voluntary administrations, we combine deep restructuring expertise with a people-first approach to deliver practical solutions that preserve value and reputation.
Why choose us?
- Independent and trusted advisors: We provide objective advice and act without conflicts, ensuring decisions are made in the best interests of stakeholders.
- End-to-end capability: From immediate cashflow and operational stabilisation to formal appointments and creditor negotiations we have capability to manage and provide support at every stage of the administration.
- Multi-disciplinary capability: Our team brings together specialists in restructuring, real estate, corporate finance, performance improvement and forensic investigations to address every dimension of a voluntary administration.
- Deep history and proven track record: We a long-standing history delivering successful outcomes across Australia and the region’s most challenging restructuring appointments.
Speak to our expert team to learn how we can help you and your organisation navigate voluntary administration and achieve the best possible outcomes
