What is voluntary administration? A plain English guide for directors

When your company’s in financial distress, it can leave you frozen, unsure of your next move.

You might have already managed cash flow, cut costs, negotiated with creditors, arranged payment plans, and even sought professional advice.

If these efforts haven’t moved the needle, voluntary administration (VA) can help assess whether your business can be rescued, restructured or wound up, without things getting messy. 

This guide explains exactly what voluntary administration is, how it works and, importantly, whether it’s right for your situation.

How voluntary administration works 

In Australia, voluntary administration is a formal, temporary insolvency process under Part 5.3A of the Corporations Act 2001 (Cth). 

It allows an independent person – a registered liquidator or insolvency practitioner under the Australian Securities and Investments Commission (ASIC) – to take control of your company while they determine if it can be saved. 

A court doesn’t impose a VA. It’s typically you, the directors, who appoint a voluntary administrator, though a secured creditor can do so in limited cases. Unsecured creditors don’t have this power, but they still play a key role in the process.

As the administrator is independent, they owe their duties to creditors – not to the directors who appoint them.

Once an administrator is appointed, a moratorium – a temporary legal pause on most creditor actions – begins. This gives your company breathing space while your administrator evaluates its options.

The main aim of a company voluntary administration is to achieve a better outcome than winding up. This usually happens through a restructure or a deed of company arrangement (DOCA).

The voluntary administration process – step by step 

To clarify what happens in voluntary administration in Australia, let’s walk through the process, step by step:

Step 1 – You decide to appoint

You, the directors, formally decide in a board resolution that your company is insolvent (or heading that way) and agree to bring in an administrator. This decision starts the process and gives everyone a clear ‘reset’ point.

Reassurance: Company directors aren’t automatically personally liable during administration. But make sure you know about insolvent trading and Directors’ Penalty Notices (DPNs).

Step 2 – Statutory moratorium kicks in

As soon as your voluntary administrator is on board, the statutory moratorium kicks in. This pauses most creditor actions – lawsuits, winding up applications and repossessions – giving your business breathing space.

Step 3 – First creditors’ meeting 

The administrator has to hold the first creditor’s meeting within eight business days of their appointment. At this meeting, creditors decide if they’re happy with them or appoint someone else. They may also select a working committee.

Step 4 – The administrator investigates 

The administrator digs into your company’s numbers, operations, assets and liabilities – and how you’ve managed the business. They then prepare a report explaining your company’s options and recommending the best path. 

Step 5 – Second creditors’ meeting 

This second creditor’s meeting usually happens within 20-25 days of the appointment. Creditors’ vote on one of three options: approve a DOCA, wind up through liquidation or end administration and return control to directors.

How long does voluntary administration take?

The usual timeframe for voluntary administration is approximately 20-25 business days from appointment to the second creditors’ meeting. This is much faster than full liquidation or lengthy court proceedings. 

This can go up to 30 business days if it falls around Christmas and Easter. Courts can also extend it in complex or unusual cases. This gives the administrator more time to collect information, talk to stakeholders and refine proposals.

The moratorium on creditor actions applies throughout this time.

The three possible outcomes 

Voluntary administration reaches its finale at the second creditors’ meeting, when your creditors vote by a majority (in number or debt value) for one of the three outcomes. If the vote is split, the administrator has the deciding vote.

Let’s take a closer look at each of these three voluntary administration outcomes.

Outcome 1 – DOCA proposal agreement (POSSIBLE)

A deed of company arrangement (DOCA) is the ‘rescue’ outcome of voluntary administration. It means your business has value and future cash flow. 

By choosing a DOCA, your company’s creditors are agreeing to accept a portion of what they’re owed. The terms are very flexible and can include staged payments, asset sales or even partial equity swaps. 

This return is better than a straight creditors' voluntary liquidation (CVL). It’s taken in exchange for allowing your company (or parts of it) to continue trading.

Outcome 2 – Company liquidation (COMMON)

If a DOCA isn’t viable for your business, or your creditors want to cut their losses and vote against it, your company moves into creditors’ voluntary liquidation (CVL).

When this happens, your administrator is usually then appointed as liquidator, where their job shifts from rescue to immediate winding up, selling your insolvent company’s assets and paying creditors in the required order of priority.

This is the most common outcome of voluntary administration. Many businesses are too distressed for a rescue plan to work, or creditors prefer to recover what they can.

Explore: What is company liquidation?

Outcome 3 – Return company to you (RARE)

Rarely, the administrator may determine viability and solvency, or that the original reasons for the administration (for example, a temporary cash flow shock or one-off dispute) have been resolved.

In these situations, the administration can end if the creditors approve by voting ‘yes’ and return control to you, the directors.

Decide your company’s future with clarity

Company voluntary administration can be the right first step for certain businesses and financial circumstances. It provides space and an independent expert to assess things more clearly. 

However, it only makes sense if there’s a realistic chance of rescuing your business. That’s something you need to determine first. 

If the outcome for your financial difficulties is creditors’ voluntary liquidation, you get a fast and equally respectful way to resolve the situation and deal with your company’s affairs – resetting your business and life.