How Does The Voluntary Administration Begin?

The voluntary administration process officially commences when a qualified administrator is officially appointed to review the situation surrounding an insolvent company and determine the best path for its financial future.

Administrators can be appointed by:

  • The directors;
  • A liquidator or provisional liquidator; or
  • Appointment by secured creditors.

Appointment by the directors

A director appointment is the most common form of appointed, and is initiated when the directors of the company resolve that the company is, or is likely to become, insolvent, under section 436A of the Corporations Act 2001 (Cth). According to the Act, directors can appoint an administrator if a company’s board has resolved to the effect that:

  • In the opinion of the directors voting for the resolution, the company is insolvent, or is likely to become insolvent at some future time; and
  • The directors simply have to be satisfied that there is a likelihood that the company will be insolvent at some future time.

Appointment by a liquidator or provisional liquidator

An administrator can be appointed by a liquidator or a provisional liquidator if they believe that a company is either insolvent or likely to become insolvent at some future time.

Liquidators are typically appointed if there is a prospect that the voluntary administration may result in a better return to creditors that continuing with the liquidation.

The liquidator or provisional liquidator may act as the administrator provided that the Court’s approval is obtained. However, under the Act a liquidator cannot appoint themselves, especially if they:

  • Are a partner or employee of the partnership;
  • Work for the insolvent company;
  • Are an employer within the insolvent company; or
  • Are a director, secretary, employee or senior manager of the insolvent company.

Appointment by Secured Creditors

A secured creditor who has a registered charge over “the whole, or substantially the whole, of a company’s property” (such as a bank) may appoint an administrator. A secured creditor may choose to do this rather than taking direct enforcement action themselves, such as appointing their own receiver or controller.

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