What is administration
A company will enter into administration when the directors of the company reasonably believe that the company is insolvent or will become insolvent. If this occurs, an administrator (who is a person external to the company) will be appointed to manage the company. A voluntary administrator can either be appointed by directors of the company, by a liquidator or by a secured creditor. See our post on administration here.
The role of the administrator
The role of the administrator is to provide a recommendation to creditors on whether or not they should:
- Liquidate the company;
- Execute a Deed of Company Arrangement; or
- Return the company to the control of the directors.
What happens with the voluntary administration process?
During the administration process, the administrator will take control of the company and the directors will lose their power to contract on behalf of the company.
The debts of trading incurred after the administrator is appointed will become the personal liability of the administrator.
The administrator will also communicate with all of the stakeholders at the start of the voluntary administration process. The administrator will advise the stakeholders of the appointment and the steps that the stakeholders should take to make a claim on the company’s assets.
The process of voluntary administration aims to give companies the ability to restructure without going through the process of liquidation.
The administrator will take control of the company’s assets, investigate the company’s affairs, report any offences to ASIC, assist the directors to produce a Deed of Company Arrangement, report to creditors on the best course of action and call meetings of creditors in order to decide whether the company should be wound up and put into liquidation or continue to trade.
During the process of administration, the creditors will have 3 options; to accept a proposal for a DOCA, end the voluntary administration and pass control back to the directors or liquidate the company.
The outcomes of the administration process
While the administrator will provide the creditors with a recommendation, the creditors will have the ultimate power to decide that happens.
The possible outcomes are:
- The company is returned to the directors (this usually only occurs if the company was solvent);
- If the company can’t find any other option and it is insolvent, the company may go into liquidation; or
- A Deed of Company Arrangement, which is a compromise of the debts due by the company.