What is Voluntary Administration?

Voluntary administration is a formal insolvency process under Part 5.3A of the Corporations Act 2001 (Cth), in which an administrator assumes control of the company. Triggered when a company is insolvent or likely to become insolvent, the process carefully assesses whether rescue or liquidation better serves creditors.

With external administrations reaching 13,413 companies by May 2025, the process remains a common response to worsening company solvency. Director-led appointments dominated that figure, with the overall rate remaining below earlier historical highs.

When Should Directors Consider Voluntary Administration?

Financial distress means a company cannot pay its debts as they fall due and faces pressure from the ATO, landlords or key suppliers. Directors must act once a company is insolvent or likely to become insolvent, not after recovery becomes impossible.

Acting early preserves the company’s real options, including the ability to restructure rather than liquidate. Directors, a secured creditor, or a liquidator can appoint a voluntary administrator at the insolvency threshold.

Administration places the company under independent control, limiting insolvent trading exposure. A moratorium on unsecured creditor actions takes effect immediately, protecting the company’s financial position.

Who Can Appoint a Voluntary Administrator?

Directors can appoint a voluntary administrator by passing a properly resolved board resolution. The board must determine that the company is insolvent or likely to become insolvent before taking that step.

Appointing an administrator at the right moment preserves the options available to the company. A secured creditor holding a security interest over substantially all of the company’s property may appoint an administrator.

A liquidator or provisional liquidator holds the power to appoint in limited circumstances. Voluntary administration formally begins once the administrator accepts the appointment.

What Happens After an Administrator Is Appointed?

Once an administrator is appointed, the voluntary administration process begins immediately under the statute. Each defined stage imposes strict legal obligations on the administrator and procedural rights on the company’s creditors.

Immediate effect and breathing space

Control of the company’s business passes immediately and directly from the directors to the voluntary administrator upon appointment. Most unsecured creditors cannot begin or continue enforcement action against the company without obtaining court permission or the administrator’s written consent.

Secured creditor enforcement rights are restricted for a defined period after the company enters voluntary administration. Owners and lessors of property used by the company face legally imposed recovery limits. The administrator retains the authority to decide whether to continue using that property during the breathing space period.

Investigation, trading and reporting

The voluntary administrator must investigate the company’s assets, liabilities, and prospects to determine whether the company or its business can be saved. Based on those findings, the administrator decides whether to continue business operations, sell assets, or preserve the company.

Each available path is carefully weighed against the likely return to creditors before proceeding. The administrator then prepares a detailed report for creditors, setting out the company’s financial position and available options.

All creditors receive a clear recommendation on which outcome best serves their collective financial interests. The second meeting of creditors then determines the company’s future.

Creditors’ meetings and key decisions

The voluntary administration process requires two formal meetings of creditors, each serving a distinct legal purpose. The first meeting of creditors must be held within eight business days of appointment.

Creditors can confirm or replace the administrator and decide whether to form a committee of inspection. No decision on the company’s future is reached at that point. The second meeting of creditors is usually convened within 25 business days of the administrator’s appointment.

Where public holidays apply, the statutory timeframe extends to 30 business days. Creditors vote on the company’s future after reviewing the administrator’s detailed report.

Possible Outcomes of Voluntary Administration

In every case, voluntary administration produces one of three legally defined outcomes for the company and its creditors. Each outcome is determined by how creditors vote at the second meeting of creditors after carefully considering the administrator’s full report.

Return to directors’ control

Creditors may vote to end the administration and return full control of the company to its directors. Voluntary administration formally ends once creditors resolve to terminate the administration and return control.

Creditors typically support an outcome in which the company’s business remains clearly viable without the need for a deed of company arrangement. No deed of company arrangement is proposed or required under the return-to-directors outcome.

The outcome is uncommon and typically arises only where the company’s financial position has stabilised during administration.

Deed of company arrangement (DOCA)

A deed of company arrangement is a formal arrangement between a company and its creditors to restructure and resolve outstanding debts. The deed’s terms are deliberately flexible, with part-payment of debts and staged payments from profits commonly used.

Asset sales and continued trading under agreed conditions are widely permitted. Creditors vote on the proposed deed at the second creditors’ meeting before it takes effect. Once approved, the deed binds all unsecured creditors. Once fully executed, the DOCA releases the company from the covered debts to the extent provided in the deed.

Liquidation

Creditors may vote to put the company into liquidation where no acceptable DOCA is proposed, or the business is not viable. The administrator is often formally appointed as liquidator when the company goes into winding-up at the end of the administration.

Liquidation marks the definitive point at which the insolvent company ceases to trade permanently. The liquidator realises the company’s assets and distributes all proceeds to creditors under the statutory priority order. Secured creditors and employee entitlements rank ahead of unsecured creditor claims in the distribution.

Impact of Voluntary Administration on Key Stakeholders

Voluntary administration fundamentally reshapes the legal rights and immediate obligations of every party connected to the company. Understanding how the voluntary administration process affects each stakeholder group allows directors and officers to make well-informed decisions before and after appointment.

Directors

Directors remain formally appointed throughout the voluntary administration process, but upon appointment, they lose all day-to-day control of the company to the administrator. Each director must deliver the company’s books, a statement of affairs and a statement of financial circumstances to the administrator.

Full cooperation with the administrator’s investigations is a strict legal obligation, not a choice. Voluntary administration can address insolvent trading risk for new debts incurred after appointment, where directors have acted promptly. Protection applies only where directors acted appropriately and without delay before appointing the administrator.

Employees

Employment does not automatically end when a company goes into voluntary administration, and many employees continue working and receiving pay throughout the process. The administrator decides whether to retain staff based on whether continuing to trade is in the creditors’ best interests.

Post-appointment wages and entitlements are treated as administrative expenses and paid first. Pre-appointment wages and leave entitlements may be paid under a deed or through statutory creditor priority in liquidation. Available government schemes may cover certain employee entitlements where the company cannot meet outstanding obligations.

Creditors and shareholders

Unsecured creditors and secured creditors hold materially different rights during voluntary administration, and employee entitlements rank ahead of ordinary unsecured claims. Creditors prove their debts by lodging a formal proof of debt with the administrator before each meeting of creditors.

A successful deed can deliver a better return to creditors than immediate winding up. Shareholders hold limited rights during administration and consistently rank behind all other creditors in any distribution. Where a company’s debts exceed its assets, shareholders typically receive nothing.

Why Get Legal Advice Before Appointing an Administrator?

Directors who delay seeking advice while continuing to trade in an insolvent position face significant personal liability under the statute. An experienced insolvency lawyer can assess the company’s position and determine whether informal workouts or safe-harbour protection apply.

Where administration is appropriate, early advice helps coordinate with experienced administrators from the outset. Directors of distressed companies should seek confidential legal advice before creditor pressure or regulator action narrows their options. Acting early preserves the widest range of outcomes for the company and its creditors.

Macmillan Lawyers and Advisors works with companies to assess whether voluntary administration is appropriate and coordinates the formal appointment process. The firm negotiates continuing trade arrangements and prepares any deed of company arrangement in-house.

A confidential, free 30-minute consultation is available for directors weighing voluntary administration or other insolvency options.

Phone: (07) 3518 8030 Email: admin@macmillan.law Location: Level 38, 71 Eagle Street, Brisbane QLD 4000 Rating: 5.0 stars based on 44 Google reviews

FAQs on What is Voluntary Administration?

Can creditors replace the voluntary administrator?

Yes, creditors can vote at the first meeting of creditors to remove the existing administrator and appoint another registered liquidator who has consented to act.

Are directors’ personal guarantees automatically wiped?

No, personal guarantees generally remain in force during voluntary administration, though enforcement may be restricted and renegotiation is sometimes possible in parallel with a proposed deed of company arrangement.

What if a creditor has already sued the company?

A court claim against the company generally pauses once administration begins. Continuing the claim requires either the administrator’s consent or a court order. Strategy typically shifts to engaging directly in the creditors’ process instead.

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