Voluntary administration is a temporary insolvency process that gives a company time to assess its options and potentially restructure. Winding up (liquidation) is the formal closure of a company, where assets are sold and the business ends. In many cases, voluntary administration is the step that leads to winding up.
On This Page
- What Is Voluntary Administration?
- What is Winding Up?
- How Are Voluntary Administration and Winding Up Related?
- Voluntary Administration or Winding Up: When Is Each Used?
- What This Means for Directors
- Final Word
- FAQs
Introduction
Voluntary administration and winding up are often used interchangeably — but they are not the same thing.
- Voluntary Administration → A temporary process to assess and decide what happens next
- Winding Up (Liquidation) → The formal closure of the company
In simple terms, voluntary administration may lead to winding up — but they are not the same thing.
What Is Voluntary Administration?
Voluntary administration is a formal insolvency process where an independent administrator takes control of the company for a short period.
The purpose is to:
- Assess whether the business can be saved
- Protect the company from immediate creditor action
- Recommend the best outcome for creditors
During this time, directors lose control temporarily while the administrator reviews the company’s position.
For a full breakdown, see Voluntary Administration: A Guide for Directors.
What Is Winding Up?
Winding up is another term for liquidation.
It involves:
- Closing the company
- Selling company assets
- Distributing proceeds to creditors
- Deregistering the company
Once winding up begins, the business usually stops trading and cannot continue in its current form.
How Are Voluntary Administration and Winding Up Related?
Voluntary administration acts as a decision point.
At the end of the process, creditors vote on the company’s future. One of the most common outcomes is winding up, particularly if the business is no longer viable.
Other possible outcomes include:
- A Deed of Company Arrangement (DOCA)
- Returning control to directors
Voluntary Administration or Winding Up: When Is Each Used?
Voluntary administration is typically used when:
- The business is under financial pressure
- Directors need time and protection to assess options
- There may still be a chance to restructure
Winding up is used when:
- The business is no longer viable
- Debts cannot be repaid
- Creditors want to recover what they can
What This Means for Directors
The difference between voluntary administration and winding up directly affects your level of control and exposure.
- Voluntary administration gives you time and protection, but you lose control temporarily
- Winding up ends the company and may trigger further investigation into director conduct
If you’re unsure which path applies to your situation, see:
- Should My Business Consider Voluntary Administration?
- Voluntary Administration vs Insolvency vs Liquidation
Final Word
Voluntary administration is not the same as winding up — it’s often the step before it.
If your business still has a chance of recovery, voluntary administration may preserve value. If not, winding up may be the most appropriate outcome.
Understanding the difference early can help you act before options narrow.
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
Is winding up the same as voluntary administration?
No — they are fundamentally different.
Voluntary administration is a temporary insolvency process used to assess whether a business can be saved or restructured. Winding up (liquidation) is the formal closure of a company, where assets are sold and the business ceases.
Voluntary administration may lead to winding up, but it can also result in restructuring or a return to directors.
For a broader explanation, see: Voluntary Administration vs Insolvency vs Liquidation: What’s the Difference?
Is winding up the same as liquidation?
Yes — in most contexts, ‘winding up’ and ‘liquidation’ mean the same thing.
Both refer to the formal process of closing a company, where:
- A liquidator is appointed
- Company assets are sold
- Proceeds are distributed to creditors
- The company is ultimately deregistered
The term “winding up” is often used in a legal or court context, while “liquidation” is more commonly used in business and advisory discussions.
In practice, there is no difference in outcome — both result in the company being shut down.
You can read more about this here: Winding up or liquidation | Office of the Registrar of Indigenous Corporations
Does voluntary administration always lead to winding up?
No.
While liquidation is a common outcome, it is not automatic. At the end of voluntary administration, creditors vote on the company’s future. The company may:
- Enter a Deed of Company Arrangement (DOCA)
- Return to directors
- Be placed into liquidation
The outcome depends on the company’s financial position and whether creditors believe a better return can be achieved through restructuring.
When should a company consider voluntary administration instead of winding up?
Voluntary administration is typically considered when there is still a realistic chance of recovery.
This includes situations where:
- The business is under financial pressure but still viable
- Directors need time to assess options and negotiate with creditors
- Immediate liquidation may destroy remaining value
Winding up is more appropriate where the business is no longer viable and cannot meet its obligations.
For more on this, see: Should My Business Consider Voluntary Administration?
Can a company continue trading during winding up?
In most cases, no.
Once a company enters liquidation, trading usually stops and the focus shifts to realising assets and repaying creditors. However, a liquidator may continue trading temporarily if it helps maximise the value of assets or achieve a better return for creditors.
ASIC provides further guidance here: Liquidation: A guide for creditors | ASIC
Who decides if a company is wound up?
This depends on the circumstances.
- In voluntary administration, creditors vote at the second meeting based on the administrator’s recommendation
- A company may also be wound up by a court order, often following creditor action
- Directors themselves may initiate a creditors’ voluntary liquidation (CVL) in some cases
What happens to debts during winding up?
During winding up, the company’s assets are sold and distributed to creditors according to a strict legal priority.
Typically:
- Secured creditors are paid first
- Employee entitlements (including wages and super) are prioritised
- Unsecured creditors are paid last
Any remaining unpaid debts are generally written off when the company is deregistered.
What happens to directors after winding up?
Directors lose control of the company once liquidation begins and must cooperate with the liquidator.
This includes:
- Providing company records
- Assisting with investigations
- Answering questions about company affairs
The liquidator may also review director conduct, including potential insolvent trading or breaches of duties.
Further reading: What Happens to Directors During Voluntary Administration?
Is winding up the only option if a company is insolvent?
No.
Insolvency is a financial condition, not an automatic outcome. While winding up is one possible result, other options may be available depending on timing and viability.
These can include:
- Voluntary administration
- Small business restructuring
- Informal negotiations with creditors
Acting early is critical, as options become more limited once financial pressure escalates.
