Yes, a company can continue trading during voluntary administration if administrators believe doing so will preserve business value, support a restructure or sale, and avoid worsening the company’s financial position. However, continued trade depends on cash flow, stakeholder support, and whether ongoing operations remain financially viable throughout the administration process.
On This Page
- Introduction
- Factors Administrators Consider Before Continuing Trade
- How Trading During Administration Affects Employees
- What Happens to Existing Contracts and Suppliers?
- Risks of Continuing to Trade
- How Customers and Creditors Are Affected
- When Trading May Stop
- What Happens at the End of Voluntary Administration?
- Next Steps
- FAQs
Introduction
Yes, a company can continue trading during voluntary administration. Entering administration does not automatically mean the company’s business must shut down immediately.
Voluntary administration provides temporary statutory relief from legal actions against the company, allowing it to focus on restructuring without the immediate pressure from secured creditors. While some companies stop trading straight away, others continue operating while administrators review the company’s affairs in terms of financial distress.
The outcome often depends on whether it is viable to continuing trading under the current financial circumstances.
Once a voluntary administrator is appointed, directors are temporarily relieved of their duty to prevent insolvent trading, providing a ‘safe harbour‘ period to focus on restructuring the business.
The voluntary administration process typically lasts between 25 to 30 business days, during which the administrator assesses the company’s financial situation and reports to creditors whether the business can be restructured, sold, or returned to profitability.
If a company successfully restructures through voluntary administration, it can emerge with a clean slate, potentially eliminating its debts and allowing it to continue operations.
However, the administrator will only allow trading to continue if it is unlikely to worsen the company’s financial position.
This blog explains the circumstances in which a company may keep trading during voluntary administration and what this means for stakeholders.
Factors Administrators Consider Before Continuing Trade
Insolvent trading occurs when a company continues to incur debts despite being unable to pay them, which can lead to severe penalties for directors. Directors can be held personally liable for debts incurred while a company is trading insolvent, facing civil and criminal charges under the Corporations Act 2001.
Some of the key factors administrators consider include:
- Current cash flow and available working capital
- Whether the business can pay for wages, rent, utilities, and suppliers during administration
- Ongoing customer demand for the company’s products or services
- The profitability of existing contracts or projects
- The chances of recovering or restructuring the business
- Whether continued trading will preserve goodwill and business value
- Support from employees, suppliers, landlords, and key stakeholders
- Potential legal, financial, or operational risks associated with continuing trade
Administrators also consider whether keeping the business operational could improve the chances of selling the company as a going concern.
In some industries, shutting down operations too quickly can significantly reduce the value of the business and damage customer confidence.
How Trading During Administration Affects Employees
If a company continues trading during voluntary administration, employees will often continue working. Maintaining staff can help preserve operations, customer relationships, and the overall value of the company.
4 Consequences of Voluntary Administration on Employees
- Ongoing employment while the business remains operational
- Changes to staffing levels, work hours, or business activities
- Continued payment for work performed during administration
- Uncertainty about long-term job security and business outcomes
Employees generally keep working during voluntary administration, but the administrator can terminate employment if necessary to reduce costs.
What Happens to Existing Contracts and Suppliers?
Existing contracts and supplier arrangements do not automatically end when a company enters voluntary administration. Under Australian law, suppliers cannot automatically terminate business-critical contracts simply because the company entered voluntary administration if ongoing payments are maintained.
This may include:
- Supplier and service agreements
- Customer contracts and ongoing projects
- Commercial leases
- Equipment hire or finance arrangements
Some suppliers may continue working with the company, while others may request stricter payment terms or upfront payment before supplying further goods or services.
If the business continues trading, the administrator will review which agreements are necessary and financially viable to maintain operations. Administrators may also renegotiate or terminate contracts that are no longer commercially practical.
Risks of Continuing Trade
Continuing to trade during voluntary administration can help preserve business value, but it also carries financial and operational risks. Administrators must assess whether ongoing trade is likely to improve the company’s position or create further losses.
Some of the main risks include:
- Ongoing trading losses
- Cash flow shortages
- Suppliers withdrawing support
- Loss of customers or staff
- Reputational damage
- Reduced returns to creditors
If continued trading is no longer sustainable, the administrator may decide to cease operations and begin winding down the business.
How Customers and Creditors Are Affected
During voluntary administration, unsecured creditors are prevented from continuing or commencing any claims against the company, providing temporary relief from legal actions.
Customers may experience:
- Delays to orders or project timelines
- Changes to payment terms or trading arrangements
- Reduced services or product availability
- Uncertainty around refunds, warranties, or future support
When Trading May Stop
A company may stop trading during voluntary administration if the administrator decides that continuing operations is no longer financially viable or beneficial to creditors.
Trading may cease where:
- The business continues to incur losses
- Cash flow is insufficient to cover operating costs
- Suppliers, landlords, or key staff withdraw support
- Customer demand declines significantly
- A sale or restructure is no longer achievable
If trading stops, the administrator may begin winding down operations, selling company assets, or preparing the business for liquidation.
What Happens at the End of Voluntary Administration?
At the end of a voluntary administration, the company may enter into a Deed of Company Arrangement (DOCA), be returned to the control of its directors, or be liquidated, depending on the creditors’ vote.
A Deed of Company Arrangement (DOCA) requires approval from more than 50% of creditors by value and number, and it binds all unsecured creditors to the arrangement, even those who did not vote in favour.
Next Steps
During voluntary administration, directors must provide the administrator with full access to the company’s financial records and other relevant documents, as failure to do so can result in civil penalties or criminal charges.
Getting early professional advice can help directors better understand their obligations and available options during the administration process.
Practical considerations include:
- Assessing whether the business can continue operating without incurring further losses
- Reviewing cash flow, ongoing expenses, and available working capital (including reviewing the company’s books, cash flow, and restructuring options)
- Determining whether employees, suppliers, and customers will continue supporting the business
- Identifying contracts or projects that remain commercially viable
- Considering whether continued trading could support a restructure or business sale
- Obtaining legal or insolvency advice to understand available options and obligations
In many cases, early action and proper financial assessment can improve the chances of preserving business value and achieving a more workable outcome during voluntary administration.
Directors should explore all available options to determine the best course of action based on the company’s financial circumstances before the Australian Taxation Office debt or creditor pressure intensifies.
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 a company earn revenue during voluntary administration?
Yes, a company may continue generating income if the administrator decides the business can keep trading during the administration period.
Who controls the business while it continues trading?
The external administrator generally takes control of the company, including trading decisions, during the administration period.
Once a company enters voluntary administration, directors lose their powers to manage the company, and the administrator assumes control over decision-making regarding the company’s future.
What happens at the first creditors’ meeting?
The first creditors’ meeting must be held within eight business days of the administrator’s appointment, where creditors can vote to replace the administrator or form a committee of inspection.
Can suppliers demand upfront payment during administration?
Yes, some suppliers may change trading terms and require upfront payment or shorter payment periods before continuing supply.
Are directors personally liable for debts incurred during administration?
Generally, the administrator becomes responsible for decisions relating to ongoing trade, although company directors must still comply with their legal obligations.
Directors have a primary duty to act in the best interests of the company’s shareholders, but this duty expands to include creditors when the company is insolvent or at risk of insolvency.
Can employees be terminated during voluntary administration?
Yes, administrators may reduce staff or terminate positions if it is necessary to reduce costs or restructure the business.
Can a business be sold while still trading in administration?
Yes, administrators may continue trading the business while seeking a buyer to preserve goodwill and maximise sale value.
Can customers still place orders during voluntary administration?
Yes, if the business continues operating, customers may still purchase goods or services, although trading terms may change.
What happens if trading during administration is unsuccessful?
If ongoing trade is no longer viable, the administrator may stop operations and move the company towards liquidation.
Do directors lose control during voluntary administration?
Yes.
Once a voluntary administrator is appointed, directors lose control of the company’s operations and major financial decisions. At this point, directors cede control of the company to the administrator while restructuring or sale options are assessed.
Can voluntary administration protect directors from insolvent trading?
In some situations, yes.
Voluntary administration may help reduce further insolvent trading liability because directors are no longer responsible for ongoing trading decisions after the administrator is appointed. It can also provide temporary protection from personal liability while restructuring options are explored under the safe harbour regime or formal insolvency process.
What happens if trading during administration creates more losses?
If ongoing trading creates further debt or ongoing losses, the administrator may decide to stop operations and move the company towards liquidation.
Administrators must continually assess whether continued trading is likely to produce a better outcome for creditors or worsen the company’s financial position.
