Author
David HillChief Operating Officer
0403 037 664
Every business goes through tough times—it’s just part of the journey. The turning point is when the right move is made at the right time. If you’re considering entering voluntary administration or are already on the path towards it, you’ve come to the right place.
Our nimble team is ready to help you bring your business back on the front foot, offering a chance to pause and take a breath. This guide breaks down the steps to entering voluntary administration and explores the benefits and outcomes, including the possibility of a Deed of Company Arrangement (DOCA).
What is Voluntary Administration?
Voluntary administration is a lifeline for businesses struggling with financial pressures. It lets you hit the reset button, giving your business the opportunity to address financial issues and steer your company back on course without the immediate stress of creditor demands.
Here’s what happens: Your appointed administrator takes a close look at your company’s financials and weighs all the possible ways forward.
The end goal? Maximising the chances of your business continuing or providing a better result for the company’s creditors than immediate liquidation.
The Steps to Entering Voluntary Administration
Let’s explore the process of entering voluntary administration.
Step 1: Make a Decision
The directors of the company will first meet to decide putting the company into voluntary administration. The organisation of the meeting should fulfil the requirements of properly convened meetings, so it needs to be by a resolution of the Board and be in writing. If it’s initiated by a secured creditor, the administration process will start through a charge over all or a substantial part of the company’s property.
Step 2: Appoint Your Administrator
The next step is to appoint a voluntary administrator — usually a registered liquidator. Here, our role is to guide your company through its next phases and the restructuring process. Once the administrator is appointed, the company is technically in voluntary administration and the benefits or protections from creditors’ claims start applying. As the external administrator, we are responsible for locating the company’s assets and protecting them, while investigating the company’s financial affairs.
During this time, the external administrator will have regular discussions with directors to explore the direction of the company. For example, together we might consider whether it’s feasible to continue trading.
Although directors give up control at this stage, it is important to understand that appointing an administrator rather than a liquidator is one of many ways to save a company. With expert oversight, you’re giving your business a structured pathway to manage debts and recover business operations.
Step 3: Take a Breather
Once you appoint an administrator, you’ll have the breathing room to reorganise and strategise without the immediate pressure of your creditor’s actions. This moratorium period lets you hit pause on company debts and court proceedings. During this time, your company is legally protected from creditors’ claims, meaning unsecured creditors cannot pursue their claims without your administrator’s consent or a court order.
Step 4: First Creditors’ Meeting
The first creditor’s meeting is held within eight business days of your administrator’s appointment, with a notice of five business days. Here, your creditors can vote to replace your administrator or if they want to create a committee to oversee the administration process so they are updated with any progress.
Step 5: Investigation
We will thoroughly review your company’s financials and operations to evaluate all possible recovery or restructuring options. Then, we will prepare a detailed report for your creditors to help make an informed decision about the company’s future.
The report should contain:
- Background information, such as details about the company’s directors
- A detailed analysis of the business’s financials
- The outcome of the voluntary administrator's investigation
Step 6: Second creditors’ meeting to decide company's future
The second meeting of the creditors is called within 25 or 30 business days of the external administrator being appointed. Creditors must be given at least five business days notice for the meeting. The administrator calls the meeting and the creditors vote on the future of the company.
Possible outcomes include:
- Returns to directors’ control
- Enter into a DOCA
- Liquidation
We take this structured approach to ensure all your stakeholders are involved in the decision process, making it clear and manageable. Each phase is set up to give your company the best chance at effectively restructuring and potentially returning to a healthy financial state or wrapping up smoothly if recovery isn’t feasible.
Pivot Out of Difficult Times: The Benefits of Voluntary Administration for Businesses
There are several benefits of voluntary administration for businesses facing financial challenges. Let’s talk about it:
Moratorium on Company Debts and Court Proceedings
Once your business enters voluntary administration, there’s a moratorium on claims on company debts from creditors and it can reduce the risk of creditors initiating legal action against your company. For companies in financial strife with mounting debts, this can give much-needed breathing space, allowing time to develop a viable plan for the future while being relieved from the pressure of constant demands for repayment from creditors.
Protect Directors from Liability
Voluntary administration provides critical protection for directors facing financial distress. It pauses trading and temporarily transfers directorial control to an appointed administrator, reducing the risk of personal liability and penalties associated with insolvent trading. This process allows directors to step back, meet their legal obligations, and avoid the possibility of bankruptcy while a tailored recovery or exit strategy is developed to address the company’s financial position.
Opportunity for a Fresh Start with a DOCA
Voluntary administration offers the possibility of your creditors agreeing to a DOCA. This agreement helps your company resolve debts under feasible terms and potentially pave the way for a successful turnaround and return to profitability.
A DOCA is a formal agreement between your company and its creditors. It maps out how debts will be managed to keep your business running or provide a better return for creditors than an immediate winding up. It can include terms like partial debt forgiveness, extended repayment periods, or business restructuring plans that allow your company to operate while repaying its debts. The deed administrator's ongoing role is to oversee the company’s compliance with the DOCA terms and ensure all obligations to creditors are fulfilled as agreed.
Inexpensive
Voluntary administration could be relatively inexpensive to initiate when considered in the context of liquidation and losing your business. Businesses need to appoint an external administrator and hold creditor meetings, and the costs might be relatively insignificant for a large company.
Three Common Outcomes of Voluntary Administration
Preparing for all possible outcomes is another thing to consider when considering how to navigate voluntary administration in Australia.
1. Return to creditors
If the company is returned to the control of the directors, then the voluntary administration processes cease and the business resumes trading as normal.
2. DOCA
A successful voluntary administration could lead to a Deed of Company Arrangement (DOCA) with your creditors. This lets us restructure debt and gives your business a chance to resume operations under new terms. It’s a positive outcome — helping preserve jobs, maintain key stakeholder relationships, and continue operations with renewed stability.
3. Liquidation
If turning the situation around isn’t possible, voluntary administration might conclude with liquidation. This means ceasing operations and selling assets to repay creditors. It’s a tough decision, but it ensures that debts are settled fairly and that all legal obligations are met. While it marks the end of business operations, it also provides a definite resolution for everyone involved and allows for a fresh start.
Tips for Achieving Voluntary Administration Successfully
Getting in Touch with Experts Early On
Give us a call at the first sign of financial distress—it can make a big difference. Our team sees beyond the facts and figures. We recognise the passion, ambition, and sleepless nights put into your business. We’re here to guide you with years of collective expertise and help you steer through the complexities of voluntary administration with clarity. When you make the right decision at the right time, we can plan for the best outcome.
Keep Communication Open and Honest
Maintaining transparent communication with your creditors, employees, and other stakeholders is crucial. By keeping them informed, we can manage expectations and look after key business relationships.
Plan for the Future
We’ll help you create realistic plans that aim for long-term business health. Backed by clear, innovative strategies, we can act with intelligence to gain creditor support, get your business back on track, and set it up to thrive.
Finding the Right Step for Your Business
Voluntary administration can be complex, but with the help of our key experts, it can be a transformative process — we’re on your side and in your corner. It’s all about taking the right steps, working with skilled professionals, and applying effective restructuring plans. This will have your business back on solid ground, setting the stage for future profitability.
If your company faces financial challenges, consider how voluntary administration might provide a structured path to recovery with Mackay Goodwin. There’s no time like the present to prepare for tomorrow. Get in touch with our experts today.
FAQs
What are the first steps when considering voluntary administration?
Start by getting a clear picture of your finances. Review your financial statements and speak to an insolvency expert to understand the best steps forward. This will help you decide if voluntary administration is the right move for your business.
Taking prompt action is strongly advised. Directors need to be aware of legislation designed to help companies avoid administration and possible liquidation. This includes use of the safe harbour provisions which provide directors with the time required to develop a business restructure and turnaround plan.
How quickly must a company act after deciding on voluntary administration?
After deciding on voluntary administration, you want to appoint a voluntary administrator as soon as possible. This is crucial to ensure legal protections that prevent creditor actions and safeguard your company’s assets.
Can I keep my business running during voluntary administration?
Yes, companies often continue to operate during voluntary administration. As your administrator, we will check if your business can keep trading under supervision. This helps stabilise finances and maintain business value.
What should we tell our employees during a voluntary administration?
Keep communication open with your employees. Let them know about the company’s affairs, how it might affect their roles, and reassure them that steps will be taken to ensure employee entitlements are addressed as part of the administration process. Transparent communication helps maintain trust and morale during these challenging times.
Get in touch
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