Voluntary administration is a process a company can choose when it starts getting into serious financial trouble. It’s usually used by directors who act early, rather than waiting until things get worse.
The idea is to give the business a chance to recover, rather than shutting it down straight away.
When a company goes into voluntary administration, an independent expert (called an administrator) takes over running the business from the directors for a short period—usually about 3 to 6 weeks. During this time, they look closely at the company’s finances, operations, and debts to work out the best way forward.
This process also lets creditors (people or businesses owed money) know that the company is being reviewed properly and that a plan is being considered.
If you are considering company administration, business restructuring, or company liquidation Sydney, BRI Ferrier can help. For now, the following article will address what does voluntary administration mean, what is a voluntary administrator, and if this course of action is right for your company.
Why a business would do this
It’s about acting at the right time.
If problems are dealt with early, there’s often a better chance the business can be saved or restructured, rather than collapsing completely. The administrator’s job is to work out whether the business can survive, and if so, how.
Understanding voluntary administration meaning
So, exactly what does it mean to go into voluntary administration? The outcome and meaning of voluntary administration will vary from company to company. However, in general, voluntary administration means breathing space to create a plan of recovery, before things can get worse. Properly executed voluntary administration can prevent escalating to liquidation.
When a company is in financial distress and recognises that it cannot pay its debts, the company’s directors may appoint a voluntary administrator. This impartial third party takes a top-line view of the financial situation, while maintaining business operations, and determines whether liquidation or restructuring is the most viable outcome.
Importantly, this should be done early, before the business becomes unviable. A voluntary administrator who is consulted and appointed quickly will greatly increase a company’s chance of coming out the other side intact.
Voluntary administration process Australia:
So, what happens when a company goes into administration:
One. Recognising financial distress
The company directors realise the business can’t pay its debts as they fall due, or is likely to become insolvent. They decide to act early to preserve options.
Two. Appointing a voluntary administrator
The directors (or sometimes a secured creditor, liquidator or provisional liquidator) appoint an independent administrator to take control of the company’s affairs. Once appointed, the administrator becomes responsible for assessing the company’s financial position.
Three. Pausing creditor actions
From the moment the administrator takes over, most creditor actions and legal claims are put on hold, giving a company in administration “breathing space” to work through options.
Four. Administrator investigates and reports
The administrator reviews the company’s finances, operations and prospects. They prepare a report for creditors outlining the financial situation and possible pathways.
Five. First creditors’ meeting
Within about eight business days of appointment, a meeting is held where creditors vote on key matters, such as whether to replace the administrator and determine if creditors wish to appoint a committee of inspection.
Six. Second creditors’ meeting
Around 25 business days after the administrator’s appointment, the next meeting is held. Here, creditors decide the company’s future. There are three options; accept a proposed Deed of Company Arrangement (DOCA); return control to the directors; or
place the company into liquidation.
Seven. Implementing the outcome
If a DOCA is agreed, that plan is put into action under the administrator’s supervision. If not, the company may go into liquidation, or in some cases the administration ends and control returns to the directors. A DOCA is binding on key stakeholders including the company, its shareholders, and its creditors (except for secured creditors who do not vote in favour of the DOCA.
Impact on stakeholders, employees, and directors
Depending on your role, you might be wondering;
- What does going into voluntary administration mean for directors?
- What happens to employees when a company goes into administration?
- What does voluntary administration mean for stakeholders?
Below is an overview of the projected impact of voluntary administration:
| Stakeholder | Impact of Voluntary Administration | What It Means in Practice |
| Directors | Lose management control of the administration company. | The administrator takes over decision‑making and directors must hand over company books/records and support the process. |
| May reduce personal liability for insolvent trading. | Voluntary administration can help directors address insolvent trading risks by having an independent expert take control. | |
| Directors may attend meetings and help with DOCA proposals. | Directors can still contribute information and help negotiate potential solutions. | |
| Employees | Employment doesn’t automatically end on appointment. | Employees may continue working and be paid for work done after the administrator is appointed. |
| Pre‑appointment entitlements may be unpaid initially. | Wages/superannuation owed from before administration may only be paid later under a DOCA or liquidation. | |
| Unpaid entitlements might be covered by government schemes. | In liquidation, the Fair Entitlements Guarantee (FEG) can help employees claim unpaid wages and leave. | |
| Creditors | Moratorium on debt recovery and legal action. | Creditors can’t enforce claims without consent or making a Court application, giving breathing space for decision‑making. |
| Participate in meetings to decide the company’s future. | Creditors vote on outcomes like the DOCA, return to directors or liquidation. | |
| May receive a better return than in immediate liquidation. | Voluntary administration aims to preserve the business and maximise value for creditors compared with winding up straight away. | |
| Shareholders | Rights are limited during administration. | Shareholders generally cannot take legal action and have limited input unless they’re also creditors. |
| May receive little or no return if debts outweigh assets. | As creditors take priority, shareholders often get paid last and often get nothing. | |
| Customers & Suppliers | Business decisions may change during administration. | Administrators can renegotiate or terminate contracts based on what’s best for recovery. |
| Uncertainty until the company’s future is decided. | Suppliers and customers may need to monitor the process closely as outcomes affect their relationships with the business. |
Advantages and disadvantages of voluntary administration Australia
When you’re in it, voluntary administration can feel like the end of the world but it’s not all downsides. There are advantages. Voluntary administration can offer a much‑needed lifeline to a struggling business by giving it breathing space from creditors and legal action, so you’re not constantly under pressure while next steps are decided.
During this period, creditor claims and court proceedings are put on hold, buying time to assess options. This pause can be crucial for businesses that still have potential to survive but are struggling with temporary setbacks. One of the key benefits is the possibility of restructuring and continuing to trade through DOCA. Additionally, directors are protected from insolvent trading penalties while the administrator explores workable solutions.
The DOCA releases the company from it’s debts, to the extent provided for within the DOCA terms & conditions.
In simple terms
Voluntary administration is a short-term “pause and review” process. It gives a struggling business breathing space, puts an expert in charge, and lets creditors decide whether the business can be saved or should be closed.
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