Voluntary Administrations and Deeds of Company Arrangement

Voluntary administration is an alternative to the liquidation of a company.

The director or directors of a company which is insolvent, or is about to become insolvent, may appoint an administrator to the company. An administrator may also, in certain circumstances, be appointed by a liquidator or provisional liquidator of the company or by a secured creditor who holds security over most of the company’s property (although such appointments are uncommon).

The objective of the appointment of an administrator is to enable the business, property and affairs of the company to be administered in a way that maximises the chances of the company continuing in existence, which may be achieved through a proposal (usually made by the company’s directors) for a Deed of Company Arrangement.

A proposal for a Deed of Company Arrangement may include various terms, however, generally a proposal will seek to provide for a better return to creditors than that which will be available in the liquidation of the company through:

• Voluntary contributions to the company by its directors, members or other parties; and/or
• The sale of some or all of the company’s assets; and/or
• Contributions to pay creditors from the company’s future trading profits; and/or
• Certain creditors agreeing not to claim in the Deed of Company Arrangement (most commonly creditors who are related parties of the company).

If a proposal for a Deed of Company Arrangement is accepted by a majority in number and value of creditors, at a meeting convened by the administrator to consider approving the proposal, it is binding on all of the company’s unsecured creditors and the company may be able to continue trading.

There may be benefits to a company’s directors and members in arranging for the appointment of an administrator to a company which is insolvent, or is about to become insolvent, including that the appointment may:

• Maximise the chances of the company continuing in existence, possibly through a proposal for a Deed of Company Arrangement.
• Provide for a better return to creditors than liquidation.
• Limit or reduce the directors’ liability for insolvent trading.
• Be a way in which a director may avoid personal liability under a Director Penalty Notice issued by the ATO.

If you are seeking advice regarding appointing an administrator to a company, please contact our Brisbane or Gold Coast office and our experienced staff will be able to assist you.