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Voluntary Administrations and Deeds of Company Arrangement

The directors of a company which is insolvent, or is about to become insolvent, may resolve in writing to appoint a Voluntary 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 made by the company’s directors for a Deed of Company Arrangement.

A proposal for a Deed of Company Arrangement may be made by the directors of a company in voluntary administration and if such a proposal 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. 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 Liquidation, 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).

 

An Administrator of a company will conduct investigations regarding the company’s affairs and will report to creditors on the results of such investigations and the terms of any Deed which may be proposed, prior to a meeting of creditors which is required to be held within 25 business days of the Administrator’s appointment unless this date is extended by the Court. Prior to the meeting of creditors the Administrator will provide his or her opinion as to whether it is in creditors’ interests to resolve at the meeting that:

  • the company to execute a Deed of Company Arrangement; or

  • the administration to end; or

  • the company to be wound up.

 

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:

  • The appointment may maximise the chances of the company continuing in existence, possibly through a proposal for a Deed of Company Arrangement; and

  • The appointment may limit or reduce the directors’ liability for insolvent trading. A director has a duty not to trade a company whilst insolvent and if a director breaches this duty, he or she commits an offence and can also be pursued for insolvent trading by a future liquidator of the company, a creditor of the company whose debt was incurred whilst the company was insolvent or the Australian Securities & Investments Commission (“ASIC). Accordingly, in circumstances where a company’s directors consider that a company is insolvent or is about to become insolvent the directors should consider appointing an Administrator or Liquidator to a company in order to avoid possible future liability for insolvent trading; and/or

 

For more information regarding Voluntary Administrations you may wish to contact one of the staff and Pearce & Heers, or alternatively the ASIC has provided further information regarding corporate insolvency which can be obtained from the ASIC’s website by following the links below.