Voluntary administration (VA) is a process where an independent registered liquidator (i.e. voluntary administrator) takes control of an insolvent company to resolve its future.
Photograph by Markus Winkler
A voluntary administrator is generally appointed by the company director(s). During the VA process, the company director or a third-party can either find a means to save the business, or allow the voluntary administrator to manage the company’s affairs to achieve a better return to creditors than if the company had been wound up. This is done through a deed of company arrangement (DOCA).
Deed of Company Arrangement
A DOCA is a legally binding agreement between the company and its creditors which dictates how the company’s affairs are to be managed. A DOCA is proposed by the director or any third party and drafted in consultation with the voluntary administrator.
Role of Voluntary Administrator
The voluntary administrator investigates and reports to creditors the company’s business, property, affairs, and financial circumstances, before evaluating the three options below available to creditors:
End the VA process and return the company to the management of the director(S);
Approve the DOCA and the company to pay its debts, in part or in whole, to its creditors;
Wind up the company and appoint a liquidator.
The voluntary administrator must provide an analysis of each option above, including any DOCA proposal, and recommend the best option to creditors.
Role of Directors during Voluntary Administration
The company director(s) cannot exercise their powers during VA. They must cooperate with the voluntary administrator by providing company books and records, and any information reasonably required to assess the company’s position and future. If a DOCA is exercised, the extend of the directors’ powers would depend on the terms of the agreement. The DOCA may stipulate that the directors to regain full control of the company or the company to go into liquidation upon completion of the DOCA.
Where the company goes into liquidation, the directors cannot use their powers.