A business is sold during voluntary administration when administrators believe a sale will provide a better outcome than liquidation. The administrator manages the process by assessing the business, maintaining operations where viable, negotiating with buyers, and distributing sale proceeds to creditors according to insolvency laws and legal priority rules.
On This Page
- Introduction
- How the Sale Process Works in Voluntary Administration
- Voluntary Administrator’s Role in the Business Sale
- How Creditors Are Affected
- Employee Entitlements During a Business Sale
- What Happens to Company Debts After the Sale?
- Director Involvement During the Sale Process
- Risks of Selling a Business in Administration
- Alternatives to Selling Business
- Next Steps
- FAQs
Introduction
When a company enters voluntary administration, selling the business may become one of the key options considered to preserve value and improve outcomes for creditors.
In some cases, a sale allows the business to continue operating under new ownership rather than proceeding directly to liquidation. This process is managed by the voluntary administrator — an independent insolvency practitioner who must be a registered liquidator — appointed to manage the company’s affairs, business, and property during the voluntary administration process.
The primary role of the voluntary administrator is to investigate the company’s financial affairs and report their findings to creditors, including recommendations about the company’s future. Administrators must act independently and impartially while working to achieve the best possible return for creditors and reporting potential offences to ASIC.
This blog explains when a business may be sold during voluntary administration, how the sale process works, and what it can mean for directors, employees, creditors, and customers.
How the Sale Process Works in Voluntary Administration
During voluntary administration, the administrator will assess whether selling the business can provide a better outcome than liquidation for a company experiencing serious financial difficulty and unable to pay its debts.
The process often moves quickly to preserve business value and reduce financial losses. The aim is to maximise the chances of the company continuing as a going concern rather than moving straight to liquidation.
The sale process may involve:
- Reviewing the company’s financial position
- Continuing to trade the business if viable
- Identifying and negotiating with potential buyers
- Conducting due diligence and finalising sale terms
- Completing the sale as a going concern where possible
In many sales, the buyer acquires the company’s assets, while prior debts and unsecured liabilities stay with the original company, which remains responsible for trying to pay its debts.
Voluntary Administrator’s Role in the Business Sale
The administrator takes control of the company and manages the sale process independently. A voluntary administrator investigates the company’s financial position and operations before recommending an outcome. Their role is to achieve the best possible outcome for creditors. The process usually runs for around 25 to 30 business days.
This may include:
- Assessing whether a sale is viable
- Managing business operations during administration
- Communicating with creditors and stakeholders
- Negotiating and reviewing sale offers
- Recommending the most appropriate outcome
The first creditors meeting is usually held within eight business days of the administrator’s appointment.
A second creditors meeting is then held, where creditors review the voluntary administrator’s report and vote on the proposed outcome for the company.
How Creditors Are Affected
A business sale does not guarantee that all creditors will be repaid in full. Sale proceeds are distributed according to insolvency laws and creditor priorities. Once the administrator is appointed, a statutory moratorium begins, temporarily pausing creditor claims, debt enforcement, winding-up applications, and most legal action against the company.
Creditors may include:
- A secured creditor with a security interest over the whole, or substantially the whole, of the company’s property
- Employees
- Suppliers and contractors
- The ATO and other statutory creditors
The administrator will usually report to creditors on expected returns and the proposed outcome. If creditors approve a DOCA, it binds all unsecured creditors, including those who voted against it or did not vote, and secured creditors who voted in favour.
Employee Entitlements During a Business Sale
Where the business continues operating after a sale, some employees may transfer to the new owner. Others may face redundancy depending on the structure of the sale.
Employee entitlements may include:
- Outstanding wages
- Annual leave and long service leave
- Superannuation
- Redundancy payments
Under a DOCA, employee entitlements are generally prioritised ahead of other unsecured creditors unless eligible employees agree otherwise.
What Happens to Company Debts After the Sale?
Company debts are repaid to creditors from sale proceeds based on legal priority rules.
After the sale:
- Secured creditors may be paid first
- Employee entitlements may receive priority treatment
- Unsecured creditors may receive partial repayment
- Remaining debts may continue if the company enters liquidation later
In some cases, a DOCA may be proposed to help the company repay its debts over time while continuing to operate, sometimes through asset sales or operational changes. If creditors vote for a DOCA, the company must execute it within 15 business days of the creditors’ meeting or it will usually move into liquidation.
Director Involvement During the Sale Process
Once a company enters voluntary administration, control of the business generally shifts from the directors to the administrator. However, directors often remain involved by assisting with information, operations, and the transition process. If creditors approve a DOCA, control of the company may return to the directors so the business can continue trading under the agreed terms.
Directors may help by:
- Providing financial records and business information
- Assisting with buyer enquiries and due diligence
- Supporting day-to-day operations during the sale period
- Helping maintain staff, supplier, and customer relationships
- Assisting with the handover to the purchaser
While directors can still provide input, the administrator is responsible for making decisions about the sale process and outcomes. This can matter for director exposure, including potential insolvent trading claims, although a personal guarantee may still be enforced after voluntary administration ends.
Risks of Selling a Business in Administration
Selling a business during voluntary administration is often done under significant financial and time pressure. Administrators may need to move quickly to preserve business value, maintain operations, and secure buyer interest before the company’s position deteriorates further.
Some of the key risks and challenges can include:
Reduced business value due to financial distress
Financial instability, public insolvency concerns, and operational uncertainty can reduce buyer confidence and lower the value of the business.
Difficulty finding buyers within a limited timeframe
Administrators often work within tight deadlines, which can restrict the time available to market the business properly or negotiate stronger sale terms.
Loss of customer, supplier, or employee confidence
Concerns about the company’s future may lead customers to leave, suppliers to tighten payment terms, or employees to seek more stable employment elsewhere.
Ongoing cash flow pressure during the sale process
Even while a sale is being negotiated, the business may still need to cover wages, rent, supplier costs, and other operating expenses. The administrator can become personally liable for certain debts incurred while trading during administration, which is why careful cash flow management is critical.
Disputes between creditors or stakeholders
Creditors and other parties may disagree about the proposed sale, expected returns, or whether the transaction is in their best interests.
Sale proceeds may not cover all company debts
In many cases, the amount recovered from the sale may be insufficient to fully repay secured lenders, employees, tax liabilities, and unsecured creditors.
Alternatives to Selling Business
Selling the business is not the only option available during voluntary administration. Depending on the company’s financial position, creditor support, and long-term viability, administrators may explore other restructuring or recovery strategies before deciding whether a sale is the most appropriate outcome.
Possible alternatives can include:
- Entering a Deed of Company Arrangement (DOCA)
- Refinancing or restructuring company debts
- Continuing to trade under administration while recovery options are explored
- Selling only part of the business or certain assets
- Informal negotiations with creditors
- Liquidation where the business is no longer viable
For eligible companies, small business restructuring may be an alternative where creditor debts are under $1 million, as it is generally more streamlined and less costly than voluntary administration.
The most suitable option will depend on the company’s financial circumstances, creditor support, and long-term viability.
Next Steps
If your business is being sold during voluntary administration, acting early can help preserve business value and improve outcomes for creditors, employees, and stakeholders. Delays may reduce restructuring opportunities and make the sale process more difficult.
The next practical steps include:
- Reviewing the company’s financial position, cash flow, and creditor obligations carefully
- Gathering financial records, employee details, contracts, and business sale documents
- Assessing whether selling the business as a going concern is commercially viable
- Communicating with key stakeholders, including employees, secured creditors, and suppliers
- Obtaining legal advice early from an insolvency practitioner or restructuring adviser before deciding whether to enter voluntary administration or pursue another restructuring path
Early advice can help directors and stakeholders navigate the administration process more strategically and minimise further financial risk.
At Halo Advisory, we work for you — the director. Financial expert Greg Bartels offers a no-obligation, consultation 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
Can directors buy back the business during voluntary administration?
Yes, in some cases, directors can buy back the business during voluntary administration. However, the sale process must be properly managed and the administrator should believe the outcome is in creditors’ best interests.
Does voluntary administration stop creditor action?
During voluntary administration, there is a moratorium on creditors’ claims, which gives the company time to negotiate with creditors, whereas in liquidation, creditors can immediately pursue their claims against the company.
How long does the voluntary administration process usually take?
The voluntary administration process typically lasts between 25 to 30 business days, during which the first creditors’ meeting must be held within eight business days of the administrator’s appointment, and the second meeting must occur within 25 business days.
How quickly can a business be sold during voluntary administration?
Some sales happen within days or weeks due to financial pressure and the need to preserve business value. The timeframe will depend on the size of the business, buyer interest, and operational stability.
Does the business keep trading while it is being sold?
Yes, many businesses continue operating during the sale process if the administrator believes ongoing trading will improve the sale outcome or preserve value.
Can customer contracts transfer to the new owner?
Some contracts may transfer as part of the sale, but this often depends on the contract terms, customer agreements, and whether consent is required.
What happens to leased premises during the sale?
The buyer may negotiate to take over the lease, but landlord approval may be required depending on the lease conditions. Depending on the terms of the DOCA, some lease arrangements may also be affected.
Will suppliers continue working with the business during administration?
Some suppliers may continue trading with the business, while others may tighten terms or require upfront payment due to the company’s financial position.
Can only part of the business be sold?
Yes, administrators may sell selected business assets, divisions, or operations if it produces a better financial outcome than selling the entire business.
Who decides whether a sale offer is accepted?
The administrator is generally responsible for assessing and accepting sale offers based on what is likely to achieve the best result for creditors. Major decisions about the company’s future are still made at a creditors meeting, where creditors vote on the administrator’s proposal.
Does buying a business in voluntary administration include its debts?
Selling a business in voluntary administration typically allows buyers to acquire assets without taking on prior debts or unsecured liabilities, which remain with the original company.
What happens if creditors approve a DOCA?
The purpose of a DOCA is to help the company pay its debts over time while continuing to operate its business, which may involve selling some assets or changing business operations.
If creditors approve a Deed of Company Arrangement (DOCA), the company can continue to trade, and the control of the company usually returns to the directors, which can help avoid insolvent trading claims.
What happens if no buyer is found for the business?
If the business cannot be sold or restructured successfully, the company may proceed into liquidation, and its assets may be sold separately.
What is the difference between voluntary administration and liquidation?
The goal of voluntary administration is to maximise the chances of the company continuing as a going concern, while the goal of liquidation is to finalise the company’s affairs and distribute its assets to creditors.
Are unsecured creditors usually paid in full after a business sale?
Not always. Unsecured creditors often receive only partial repayment depending on the sale proceeds and the company’s overall debt position.
