What is Voluntary Administration?
Voluntary Administration (VA) is a formal insolvency process designed to help financially distressed companies assess their position and consider options to avoid liquidation. An independent Registered Liquidator, known as the Administrator, is appointed to take temporary control of the company.
Their role is to review the company’s affairs, investigate the financial situation, and work with the director to determine the best outcome for creditors and the future of the business. During this period, the company benefits from a moratorium that stops most creditor enforcement action.
VA provides breathing space, stabilises the situation, and allows restructuring options to be explored without the pressure of escalating creditor demands.
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When is Voluntary Administration appropriate?
VA may be appropriate when:
- The business is insolvent or likely to become insolvent
- The core business is viable but burdened by legacy debt
- Creditor pressure, statutory demands or ATO action (including DPNs) is increasing
- Directors want to avoid liquidation and preserve the existing business
- Jobs, contracts or goodwill could be saved if the company is restructured
- A better return to creditors is possible compared to liquidation
VA helps stabilise the business and provides time for directors and the Administrator to consider a workable solution.
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What is a Deed of Company Arrangement?
A Deed of Company Arrangement (DOCA) is a binding agreement between a company and its creditors that sets out how its debts will be settled. It is one of the potential outcomes of Voluntary Administration and is used when the business can continue operating under an affordable repayment or settlement structure.
A DOCA can include lump-sum contributions, staged payments, support from third parties or the sale of certain assets. Once approved, it allows the company to continue trading while meeting the agreed obligations.
All unsecured creditors are bound by the terms of the DOCA, regardless of how they voted.
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How does the Voluntary Administration process works?
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Appointment
The director appoints an independent Administrator, who immediately takes control of the company. -
Investigation
The Administrator reviews the company’s records, financial affairs, trading history, related-party transactions and potential outcomes for creditors. -
Proposal
The Administrator works with the director to consider options, including liquidation or entering a DOCA. -
Report to creditors
A detailed report is issued that outlines the company’s position, compares outcomes, and includes recommendations. -
Meeting & vote
Creditors vote on the future of the company. They may choose to:
• Accept a DOCA
• Return control to the directors
• Place the company into liquidation
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How does a DOCA fits into the VA process?
A DOCA is proposed where the Administrator considers the business capable of surviving with a suitable repayment or restructuring plan. If approved, the company continues trading while meeting the DOCA obligations.
A DOCA typically aims to:
- Reduce the company’s debt burden
- Preserve business value, jobs and contracts
- Deliver a better return to creditors than liquidation
- Provide a clear and affordable framework for debt settlement
- Allow the business to continue trading with stability
Once creditors approve the DOCA, it becomes legally binding.
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What are the benefits of a DOCA?
- Continued trading of the business
- Protection of jobs and ongoing contracts
- A more flexible and affordable repayment structure
- A better outcome for creditors than liquidation
- Reduced risk of immediate shutdown
- A controlled pathway to stabilise and restructure the company
A DOCA can provide a practical solution for businesses that need to resolve debt while remaining operational.
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How do creditors vote on a DOCA?
A DOCA is approved if a majority of creditors vote in favour, both:
- by number, and
- by value of the debts represented at the meeting
Once passed, the DOCA binds all unsecured creditors.
If the DOCA is not approved, the company will generally proceed to liquidation.
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What questions should you ask before entering VA?
- Is the business viable with the right restructure in place?
- What outcome would creditors receive in liquidation compared to a DOCA?
- Are my financial records, tax lodgements and employee entitlements up to date?
- What personal risks do I face, including DPNs and personal guarantees?
- Will a DOCA allow a better long-term outcome than liquidation?
- How will the Administrator’s review of past transactions affect my position?
These questions help you as directors assess whether VA/DOCA is the right way forward.
VA/DOCA can provide a clear pathway to stabilise a business, resolve debt and avoid liquidation. Timing is critical, and early action often leads to better outcomes.
Contact the de Jonge Read® team today for a no-cost, no-obligation discussion to understand your options.
