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What is a voluntary administration and how does it work?
A voluntary administration generally occurs when company directors resolve to appoint a voluntary administrator to the company. In some circumstances, a voluntary administrator can also be appointed by secured creditors or a liquidator.
The first creditors’ meeting is called by the administrator within 8 business days of appointment. At this meeting, two issues are decided. Firstly, whether the creditors wish to appoint a different administrator. Secondly, whether they wish to form a committee of creditors and if so who will make up the committee.
The administrator will take control of the company, conduct investigations and report to the creditors and the Australian Securities and Investment Commission. After the investigations take place, the second meeting of creditors will be held. The administrator will provide a report with options for the company’s future. These options may include:
- Entering a deed of company arrangement
- Placing the company in liquidation
- Ending the administration and handing the company back to the directors
Once the company enters voluntary administration, a moratorium comes into effect. This moratorium prevents the company from being sued by creditors without the written consent of the administrator or the leave of the court (with some exceptions). During this period, guarantees given by a director of the company are unenforceable.
What is a deed of company arrangement and how does it work?
A deed of company arrangement (DOCA) is an agreement between the company and its creditors to satisfy the company’s debts.
The terms of the DOCA are as agreed – generally, the DOCA allows the company to continue operating and may maximise the return for creditors.
Creditors are able to vote on a DOCA at the second meeting of creditors, which is generally held 15 to 25 days after the appointment of the administrator. The company must execute the DOCA within 15 days of the creditors’ voting for the proposal to enter a DOCA. Failure to comply within the time period would automatically put the company into liquidation.
All unsecured creditors are bound by the DOCA, even in the event that they did not vote for it. Secured creditors are not bound if they did not vote for the DOCA, unless the court orders that they be bound. The deed administrator appointed under the DOCA is responsible for monitoring the company.
What are the benefits of entering voluntary administration?
Entering voluntary administration can provide a solution for companies to:
- Avoid insolvent trading
- Come to an arrangement with creditors in relation to the company’s debts
- Give the company ‘breathing room’ which may allow it to get back on its feet
- Maximise the returns to creditors
What are my rights as an unsecured creditor?
An unsecured creditor’s rights include:
- Lodging a proof of debt
- Attending creditors’ meetings
- Voting at creditors’ meetings (if a proof of debt form has been lodged)
What are my rights as a secured creditor?
A secured creditor’s rights include:
- Lodging a proof of debt
- Attending creditor’s meetings
- Exercising their rights over their security within 13 business days
- Voting at creditors meetings (for the full amount of the debt)
Confused? Don’t hesitate to contact us to find out more about Voluntary Administration.