Voluntary administration helps companies in financial trouble by pausing creditor action, allowing independent assessment, and enabling restructuring or orderly exit. It gives businesses time to stabilise operations and negotiate with creditors. While it doesn’t guarantee survival, it can improve outcomes for both the company and its creditors when used early.
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Introduction
When a company faces mounting debts or creditor pressure, voluntary administration can provide a structured pathway to stabilise the business and assess its future. It involves appointing an independent administrator to take control of the company, assess its financial position, and determine the best way forward.
This blog explains how this process helps both the business and its creditors.
How Can Voluntary Administration Help?
Voluntary administration provides a structured process for companies facing financial distress. It creates a controlled environment where the business can be assessed and, where possible, stabilised.
Key ways voluntary administration may assist include:
- Debt Moratorium: Stops most creditor action and gives the business breathing space.
- Independent Financial Assessment: An independent administrator reviews finances and identifies what went wrong.
- Clear Exit Options: The company is either returned to directors, restructured, or moved into liquidation.
- Opportunity to Continue Trading: In some cases, the business can continue operating during administration, preserving value and maintaining customer relationships.
- Restructuring of Debts: Enables proposals to compromise or restructure debts through a Deed of Company Arrangement (DOCA).
- Asset Protection: Helps avoid forced asset sales and preserves business value.
- Better Creditor Outcomes: Gives creditors a formal process to vote and often improves returns for them.
- Director Protection: Reduces risk of insolvent trading if action is taken early.
- Negotiation Time: Creates time to renegotiate with landlords, suppliers, and creditors.
Voluntary administration does not guarantee that a business will survive. However, it provides a structured pathway to determine whether recovery is possible and to manage outcomes in an orderly way.
For a detailed explanation of the process, see: Voluntary Administrator Explained: What They Do, Who Appoints Them, & What Happens Next.
Example
A construction company, BuildRight Pty Ltd, has $3.2 million in total debt, including:
- $1.5 million owed to suppliers
- $900,000 in ATO liabilities
- $800,000 in secured bank debt
Due to delayed project payments and rising material costs, the company cannot meet upcoming obligations. Several suppliers issue legal demands, and one threatens winding-up action.
The directors appoint a voluntary administrator. Once appointed:
- Creditor actions are paused, stopping immediate legal proceedings.
- The administrator identifies that 2 of 6 projects are loss-making and recommends exiting them.
- The business continues trading on 4 profitable contracts generating steady cash flow.
- A DOCA is proposed to repay creditors 40 cents for every dollar owed over an 18-month period.
Creditors vote in favour of the DOCA because it offers a better return than liquidation, where estimated recovery was only 15–20 cents in the dollar.
As a result:
- The company reduces its debt burden
- Retains 25 out of 30 staff
- Completes profitable projects and stabilises cash flow
Note: This is a hypothetical example for understanding purposes. Outcomes can vary depending on the financial situation of the company.
Important Points to Remember
Directors should be aware of several key factors that can affect how voluntary administration operates in practice:
Secured Creditor Rights
Secured creditors with security over most of the company’s assets have a 13-business-day decision period. During this time, they may appoint a receiver, which can override the protections of voluntary administration.
Director Guarantees
Personal guarantees are generally paused during administration but may be enforced once the process ends, depending on the outcome.
Director Conduct During Administration
Directors must not incur new debts without the administrator’s approval. Doing so may result in personal liability.
Administrator Independence (DIRRI)
The administrator must provide a Declaration of Independence, Relevant Relationships, and Indemnities (DIRRI). This disclosure ensures transparency and helps creditors assess any potential conflicts of interest.
Voting Outcomes
If creditor votes are split, the administrator may exercise a casting vote to determine the outcome.
Administrator Liability
Administrators are personally liable for debts incurred during the administration period. This typically results in cautious decision-making around continued trading.
Creditor Oversight
Creditors may form a Committee of Inspection to monitor the administration and provide input on key decisions.
Contractual Limitations
Some agreements—such as financial contracts or government licences—may still be terminated despite the administration process.
Ipso Facto Protections
Ipso facto provisions may prevent certain contracts from being terminated solely due to insolvency or administration. However, these protections do not apply to all contract types.
Certain arrangements, including financial products and some regulated agreements, may fall outside ipso facto protections and can still be terminated, potentially impacting business continuity.
Next Steps
Directors who believe their company is facing financial pressure should act early and assess their options. Speaking to an insolvency or legal professional can help you understand whether voluntary administration is appropriate and how to move forward with clarity.
At Halo Advisory, we work for you — the director. Financial expert Greg Bartels offers a no-obligation, confidential conversation to help you understand where you stand, what risks exist, and what options are realistically available before deadlines reduce control. Get in touch today.
FAQs
Who pays for the voluntary administrator’s fees?
The company’s assets usually cover the costs, and creditors may approve fees during the process.
Can a company exit voluntary administration without restructuring?
Yes, if creditors agree, control can be returned to directors if the company is considered viable.
How are creditor votes calculated?
Votes are based on both the number of creditors and the value of their debts, not just a simple majority.
Can employees continue working during administration?
Yes, if the business continues trading, employees may remain employed under the administrator’s control.
Can voluntary administration be initiated by someone other than directors?
Yes, it can also be initiated by a secured creditor or a liquidator in certain circumstances.
Can a company enter voluntary administration more than once?
Yes, but repeated administrations may raise concerns with creditors and affect their willingness to support restructuring.
What happens to leases during voluntary administration?
Leases are generally not terminated automatically, but the administrator can choose whether to continue or disclaim them.
Can legal proceedings continue during voluntary administration?
Most proceedings are paused, but creditors can apply to the court for permission to continue in certain cases.
What happens to company bank accounts during administration?
The administrator takes control of all accounts and manages all incoming and outgoing payments.
What happens if the business runs out of cash during administration?
The administrator may stop trading or seek funding, as they are personally liable for debts incurred during the process.
Can a DOCA be changed after it is approved?
Yes, but only if creditors agree to vary the terms through a formal process.
