Administration

Administration is the most common form or corporate reorganisation, governed by Part 5.3A of the Corporations Act. Administration involves the appointment for an external administrator to resolve a company’s future direction.

An administrator can be appointed by a liquidator/provisional liquidator, should he or she believe that the company is, or is likely to become insolvent, or a secured creditor who has an enforceable security interest in the whole, or most, the company’s property. Secured creditors usually prefer to appoint a receiver.

Voluntary Administrations

Voluntary administration commences on the day an administrator is appointed by the company, if the board resolve that the company is, or is likely to become, insolvent.

Through the voluntary administration process, a company can also be wound up. There is no requirement for a resolution of the members, the directors can resolve to appoint voluntary administrations to control the company. Following the resolution being passed, the administrators who consented are appointed and a meeting of creditors is held within eight (8) business days of their appointment. At the meeting, the creditors are presented with the opportunity to appoint alternate administrators.

Following the first meeting, the administrators conduct investigations into the company and issue a report pursuant to section 75-225 of the Insolvency Practice Rules (Corporations) 2016, which outlines the findings of the investigations, and the creditors’ available options with respect to the company’s future. The options provided to creditors include, accepting a DOCA (if one is proposed), placing the company into liquidation or ending administration and handing the company back to be control by the directors.

A second meeting of creditors is held to consider the options available to creditors. Voluntary administrations are best placed for companies that wish to implement a DOCA, yet, there are circumstances where it may not be appropriate to place the company into liquidation, including where winding up proceedings are underway and therefore the creditors; where voluntary winding up process is not an option as the business is continuing to trade and it is more appropriate/feasible for an administrator to manage ongoing trade; or where a DOCA is being considered.

The voluntary administration process is usually more expensive due to the increased work involved. In most cases, the creditors’ voluntary winding up process is a more appropriate method of the voluntary appointment of a liquidator.

A company must advertise its status on all public documents while in voluntary administration.

Effect on Secured/Unsecured Creditors /Guarantees

Secured creditors have 13 business days from the appointment date to exercise their security. If they do not do so within that time, they are bound by a moratorium for the duration of the voluntary administration period. This decision period gives the secured creditor time to decide whether to exercise their charge, and the administrator some certainty during the administration.

A moratorium is imposed on unsecured creditor actions—they cannot enforce their claims or apply to wind up a company. A provisional liquidator cannot be appointed to a company without the leave of the court, and all proceedings or enforcement action against a company’s property is placed on hold.

Creditors holding third-party guarantees from directors are bound by the moratorium during the period of the administration. After the voluntary administration ends, guarantees can then be enforced.

The Powers of an Administrator

The administration assumes control of the company’s business, assets and financial affairs. The sole responsibility of the administrator is to perform all functions and exercise all directors’ powers that would have been exercised, should the company have not been placed into administration. This includes continuing to trade or to dispose of all, or any part of a business or property. The company’s directors and officers no longer have any such powers.

An administrator will:

Control the company’s assets;
Investigate the company’s affairs;
Report offences to ASIC;
Assist the directors to formulate the doca proposal;
Report to creditors on the course of action which best supports their interests; and
Call the required meetings of creditors to decide the company’s future.

The administrator is required to investigate potential voidable transactions, but only to carry out sufficient investigations to justify any recommendations made in the report to creditors. The administrator has no power to commence any recovery proceedings.

A voluntary administrator does not have the authority to pay dividends.

Want to know more about corporate insolvency?

Get in touch today to find out more about corporate insolvency and how it relates to you.