What is Voluntary Administration

The purpose of a Voluntary Administration is to maximise the chances of a business in financial difficulty continuing or the return to impacted creditors. The process can be used to restructure the affairs of a company so that it can continue at the end of the Voluntary Administration process. 

Voluntary Administration is a process initiated by the directors of a company, or a secured creditor of a company, when they form the view, the company is, or is likely to become, insolvent.  

The process involves the appointment of a voluntary administrator to the company to administer and investigate the business, property, affairs and financial circumstances of the company.  

The company can continue to trade during the voluntary administration process, subject to adequate funding being available, with the benefit of a moratorium against certain court and enforcement actions. An additional benefit is the preservation of leases, which are subject to a five-business day rent-free period upon the appointment of a voluntary administrator.

A voluntary administrator must complete investigations, form an opinion about the company’s financial position and its future and issue a detailed report to creditors of the company. Creditors are then given the opportunity to vote on the future of the company.

The vote occurs at the second meeting of creditors with the following outcomes possible: 

• That the company enter into a Deed of Company Arrangement, if one is proposed; or
• The company be wound up and a liquidator appointed; or
• That the administration end and control be returned to the company’s director (this is likely to only occur in circumstances where the company is solvent).  

The period between appointment and the second meeting is typically 25 business days, however, this may be extended by the administrator or the Court, if required.

What is a Deed of Company Arrangement (DOCA)?

A DOCA is an arrangement between a company and its creditors proposed by the director (or any third party), which typically aims to allow the company and its business to continue and/or provide a better return to creditors than the immediate winding up of the company. It is common for a third party acquirer, director, lender or any interested party to propose a DOCA providing them with control of the Company.

Should creditors resolve that the company enter into a DOCA, the DOCA will ordinarily be executed within 15 business days of the resolution, unless extended by the Court.

Once the DOCA has been executed, the company will remain subject to external administration until the terms of the DOCA have been met in full, typically resulting in the payment of a dividend to creditors.

In circumstances where the company needs to accelerate its exit from external administration a Creditors’ Trusts may be established, whereby the creditors of the DOCA are transferred into beneficiaries under the Creditors’ Trust.  At this point the DOCA is effectuated, and the company exits external administration with full control reverting to the DOCA Proponent. The Trustee of the Creditors Trust (the former deed administrator) then, similar to the role of a Deed Administrator, commences the formal adjudication process of claims and distributes the trust funds to the beneficiaries in accordance with the Trust Deed.

The DOCA or Creditors Trust typically terminate upon payment of a final dividend to their respective creditors.

Seeking guidance about voluntary administration? Let us assist you

At Wexted Advisors, we specialise in acting as voluntary administrators and guiding businesses through the complexities of the process, with expert advice and tailored strategies.

If you have received a director penalty notice, are encountering financial difficulties or are engaged in major disputes, please contact us for a confidential consultation.