Insolvency & Liquidation
10. Voluntary Administration
Firm / Chambers:
Last updated: 11 Aug 2015
- A voluntary administrator is typically appointed by the company’s directors after they decide that the company is insolvent or approaching insolvency. Less frequently an administrator is appointed by a liquidator or provisional liquidator or by a secured creditor.
- The administrator’s task is to:
- investigate the company’s affairs;
- report to the company’s creditors; and
- recommend to creditors whether the company should:
- enter into a deed of company arrangement (DOCA);
- be liquidated; or
- be returned to the company’s directors.
- The administrator’s appointment gives the company some breathing space while its current situation and future is being considered. While the company is in administration:
- claims against the company by unsecured creditors require the consent of the administrator or the permission of the court to be:
- commenced;
- continued; or
- enforced;
- owners or lessors of property that is used or occupied by the company cannot recover their property;
- secured creditors are generally unable to enforce their security;
- creditors cannot commence winding up proceedings; and
- creditors with a personal guarantee from a director or directors cannot act under that guarantee without the permission of the court.
- The administrator must inform creditors of their appointment promptly.
- Creditors can make a claim by completing a ‘proof of debt’ form attaching any relevant invoices or other documents that support their claim.
- This notifies the administrator of their claim and enables them to vote at creditors' meetings.
- However creditors will not receive any payment in relation to their claims during the administration. Dividends are generally only paid during either a deed of company arrangement (DOCA) or a liquidation depending on the decision made by creditors regarding the future of the company.
- Expenses of the administration are paid in priority. Therefore priority is given to:
- employee entitlements that arise after the administrator’s appointment being expenses of the administration;
- debts that arise from the administrator such as:
- purchasing goods or services; or
- hiring, leasing, using or occupying property.
- The appointment of a voluntary administrator does not automatically terminate the employment of company employees. However unless the administrator adopts the employment contracts or enters into new ones with employees the administrator is not personally liable for any employee entitlements that arise during the administration.
- While any employee entitlements that arise after the administrator’s appointment have a priority claim against the company’s assets as an expense of the administration employee entitlements that arose prior are not usually paid during voluntary administration.
- How and when these entitlements are paid depends on the decision made by creditors regarding the company’s future.
- In the rare event that the company is returned to its directors they will be responsible for ensuring that the company pays outstanding entitlements.
View more Information on Business & Company