Understanding the Process of Voluntary Administration

In the post-GFC environment, pressure remains on businesses to maintain liquidity and compete. However sometimes despite their best efforts, company directors have to make the hard decision to place their company into voluntary administration. In other cases, a secured creditor may make the decision for them.

A company will be placed into voluntary administration where it is, or is likely to become insolvent.

When a company is placed into administration, a voluntary administrator will investigate the company’s financial affairs and make a recommendation to creditors to either:

  • return the company to the directors’ control;
  • have the company enter into a deed of company arrangement; or
  • have a liquidator appointed and wind the company up.

The purpose of voluntary administration is to effectively put it in “standby mode” until a decision is made about its future.

During the period of administration claims by unsecured creditors cannot be commenced or continued without the consent of the voluntary administrator or an order of the court.

Further during that time, a creditor with a personal guarantee from the company’s director or other person cannot enforce the guarantee without first obtaining a court order.

Due to the impact on creditors, the voluntary administrator must comply with a strict timetable to enable the future of the company to be determined and creditors either participate in a Deed of Company Arrangement, lodge a proof of debt in liquidation or take action to recover their debts against the company and the personal guarantor.

The lawyers at DSS Law have vast experience in advising companies, creditors, guarantors and external administrators and can assist in navigating the voluntary administration process.

Kaye Griffiths Kaye Griffiths 25/10/2016

Disclaimer

DSS Law insight articles are intended to provide commentary and general information. They should not be relied upon as formal legal advice. If you would like specific advice relating to this topic, please contact DSS Law on epost@dsslaw.com.au.