Advantages and disadvantages

The advantages of a Voluntary Administration include (but are not limited to):

• The directors passing control of an insolvent company to an independent insolvency practitioner who will assist the directors to find a solution for the company or the business to survive;
• The appointment can be made very quickly and without ASIC or court approval. All you need to do is to find a Voluntary Administrator who will accept the appointment;
• During the Voluntary Administration period (which can range from approx. 25 business days up to 30 business days without court consent) the company will be protected whilst the directors formulate a proposal for a Deed of Company Arrangement (link to what is a Deed is a Company Arrangement);
• Without consent of the Court, a creditor cannot force the compulsory winding up of the company;
• Any proposal for a Deed of Company Arrangement does not need the prior approval of a Court or ASIC.
• The majority of creditors voting at a meeting called by the Voluntary Administrator can approve the proposal. As such a Voluntary Administration can be a very cost effective way to restructure the affairs and to compromise the debt of an insolvent company;
• If the DOCA is accepted the company will avoid liquidation and accordingly no further investigations will be carried out and no transactions can be potentially be “clawed back” as is the case with liquidation.

The disadvantages of a Voluntary Administration include:

• Suppliers may put a stop supply on the company. If this occurs, the administrator will need to pay
• “cash on delivery” to ensure supply or provide an “administrator’s purchase order” which attracts personal liability;
• The law stipulates that an administrator will become personally liable for goods or services ordered during
• the voluntary administration period so accordingly the administrator may be cautious not to incur debt without knowing the company can pay for it. A very thorough cash flow will need to be prepared prior to the appointment of an administrator;
• The landlord and finance companies may be disadvantaged as they will not be able to force repossession of their premises or goods during the Voluntary Administration period. Furthermore, the administrator does not have to pay rent for the first 7 days.
• The cost of a Voluntary Administration can be significant depending on the size and complexities of the business. The costs become more significant if the company is still trading./li>
• Given the relatively tight period of between (25 days to 30 business days) the process can cause a significant amount of stress for the company staff and the administrator.