Voluntary administration is a formal insolvency process that changes how a company is managed and how directors are involved. While directors remain in office, control shifts to an independent administrator. Personal liability is not automatic but depends on directors’ conduct before and during the administration.
FREE Download: Before Voluntary Administration: Director Checklist
On This Page
- Introduction
- When Voluntary Administration Begins
- Losing Control
- Legal Responsibilities
- Personal Liability
- What Directors Can and Cannot Do
- After Voluntary Administration Ends
- Reducing Personal Risk
- FAQs
Introduction
A common misconception is that directors are sidelined entirely once a company enters voluntary administration. While operational control shifts, directors remain involved in specific ways and may still face legal consequences.
The administration process imposes clear limits on what directors can and cannot do. This guide explains the reality of a director’s role during voluntary administration. This is particularly important for understanding what happens to directors of an insolvent company, as voluntary administration is often the point where legal exposure and responsibilities become more defined.
When Voluntary Administration Begins
Directors remain in office, but their powers are effectively suspended unless the administrator approves. Under Section 198Gof the Corporations Act 2001, a director cannot perform or exercise a function or power as an officer of the company without the administrator’s written approval.
In practical terms, this means directors can:
Directors are also required to cooperate fully with the administrator. This includes:
- Providing access to the company’s books, records, and financial statements.
- Explaining the company’s financial history and recent decisions.
- Disclosing details of assets, liabilities, and outstanding obligations
- Assisting with investigations into the company’s affairs where required
- Completing and lodging a Report on Company Activities and Property (ROCAP). This is a formal statutory document (formerly known as a Summary of Affairs) that directors must provide to the administrator within 5-7 business days of the appointment.
Not sure whether voluntary administration is approaching — or still avoidable?
Our Voluntary Administration: Director’s Checklist helps you assess financial pressure, creditor risk, and timing before any formal step is taken.
Losing Control
Yes — during voluntary administration, directors lose control of the company. Control passes to the voluntary administrator, who becomes responsible for business management and decision-making.
This means directors can no longer:
- Negotiate with creditors, suppliers, or lenders on the company’s behalf.
- Commence or defend legal proceedings without the administrator’s approval.
- Represent the company in external dealings unless authorised.
- Implement restructuring or recovery plans independently.
Note: Under section 442A, the administrator may remove directors from management and appoint or remove officers as necessary, for effective control over company governance.
Legal Responsibilities
Directors must also take care not to breach their general duties under the Corporations Act. This includes avoiding misleading conduct, acting for an improper purpose, or using their position to gain a personal advantage.
Attempting to influence the administrator’s decisions or favour certain outcomes can create legal issues.
During voluntary administration, directors must:
- Explain significant or unusual transactions entered into before administration.
- Provide assistance, information, and access to company records when requested.
- Avoid obstructing the administrator while they perform their duties.
Personal Liability
No. Voluntary administration doesn’t automatically make directors personally liable for the company’s debts. An administrator’s appointment is not for punishing directors.
However, directors can still face personal liability, where legal obligations were breached before or during the administration process. For example:
| Situation | Description |
| Insolvent Trading | Company continued to incur debts while insolvent. |
| Director Penalty Notices | Unpaid GST, PAYG withholding or superannuation. |
| Breach of Duties | Failing to act in good faith or for a proper purpose. |
| Unreasonable Transactions | Payments or benefits to directors or related parties. |
| Personal Guarantees | Guarantees given to lenders, landlords, or suppliers. |
| Misconduct & Non-disclosure | Withholding info, misleading records, or prioritising personal interests. |
Read More: Are directors personally liable for company debts?
Concerned about personal exposure as pressure builds?
Our director’s checklist helps directors identify early warning signs and take practical steps before risk escalates or control is lost.
What Directors Can and Cannot Do
What directors can do
- Cooperate fully with the voluntary administrator
- Seek independent professional or legal advice about their own position
- Communicate with the administrator about concerns or proposed options, if invited
- Attend meetings when requested, including creditor meetings
- Comply with statutory notices and formal information requests
- Propose a Deed of Company Arrangement (DOCA) to save the business
What directors cannot do
- Make public statements on behalf of the company
- Hire, dismiss, or change the terms of employment for staff
- Access or use company funds for any purpose
- Dispose of intellectual property or customer data
- Attempt to recover debts owed to the company independently
After Voluntary Administration Ends
After voluntary administration, directors may experience:
- A return to full management powers if the company survives
- Ongoing cooperation obligations if the company moves into liquidation
- Continued scrutiny of conduct prior to administration
- Requests to explain decisions or transactions made before administration
- Potential legal action if breaches of duty or insolvent trading are identified
The negative consequences directors can face from legal action are:
- Claims seeking compensation for losses suffered by creditors
- Civil penalties imposed by a court
- Orders disqualifying a director from managing companies for a period of time
- Personal liability for specific debts (e.g., unpaid employee entitlements or tax obligations)
In some cases, companies may eventually be deregistered or struck off. What happens to directors when a company is struck off depends on prior conduct — obligations and liabilities can still continue even after the company ceases to exist.
Reducing Personal Risk
Directors can reduce personal risk early by:
- Recognising when voluntary administration may be necessary and acting promptly
- Preparing for the transfer of control to the administrator
- Ensuring company records and financial information are accurate and up to date
- Avoiding incurring new debts once administration is likely
- Not making payments or transactions that could later be challenged
- Cooperating fully with the voluntary administrator from day one
- Seeking independent advice before and during voluntary administration
At Halo Advisory, we work for you — the director, supporting businesses in Sydney and across Australia facing financial pressure and uncertainty. Financial expert Greg Bartels offers a no-obligation, 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
What happens if a director’s loan is not repaid?
If a director owes money to the company and the loan is not repaid, it remains a recoverable asset of the company. In insolvency or liquidation, a liquidator or administrator may seek repayment, even if the company has ceased trading.
What happens to a director’s loan if the director dies?
A director’s loan does not disappear on death. It becomes a debt of the director’s estate and may be recovered by the company from the estate, subject to probate and estate administration.
Can a director’s loan account be written off?
In limited circumstances, yes, but this can trigger tax consequences and scrutiny. Writing off a director’s loan may be treated as income or a dividend and can raise issues if the company is insolvent or approaching insolvency.
What’s the best way to get rid of a director’s loan?
There’s no single best way. Common options include repayment, declaring a dividend (where lawful), offsetting against salary, or formal loan restructuring. The best approach depends on the company’s financial position and should be done with tax and legal advice.
What are the grounds for removing a director?
Serious misconduct, incapacity, or failure to act in the company’s best interests are common grounds for removing a director.
How to reduce a director’s loan?
A director’s loan can be reduced through repayment, salary offsets, dividends, or approved loan restructuring. Any reduction must comply with company law and tax rules to avoid unintended consequences.
Can a director just walk away from a company?
A director can resign, but resignation does not remove liability for actions taken while in office. Obligations and potential claims relating to past conduct can continue after resignation.
What legal obligations do directors have during a voluntary administration process?
During voluntary administration, directors must cooperate fully with the administrator and provide access to company records and information. They must also avoid interfering with the process and remain honest and transparent in all dealings.
What happens to a director of a company in liquidation?
When a company enters liquidation, directors lose control of the business, and a liquidator is appointed to take over its affairs. The liquidator investigates the company’s financial history and the conduct of its directors, particularly in the period leading up to insolvency.
Directors are required to cooperate fully, provide records, and assist with the process. While directors are not automatically personally liable, they may face consequences if misconduct is identified — such as insolvent trading, breaches of duty, or unpaid tax obligations. In some cases, this can result in compensation claims, penalties, or disqualification from managing companies.
