Voluntary administration

Fast track sales involve the voluntary administrator selling the assets of a business during a voluntary administration, instead of recommending a debt compromise or ‘Deed of Company Arrangement’. While a fast track sale in a voluntary administration is legal, it is relatively uncommon in Australia. Here we explain how fast track sales work, and consider whether they are a desirable feature of Australian insolvency law. If it occurs, company directors may feel betrayed by a voluntary administrator if they are expecting a debt restructure through a ‘Deed of Company Arrangement’.

Recent research gives a figure for voluntary administration of $30-50,000 per appointment for small sized companies. With a Deed of Company Arrangement (DOCA), this price can easily double. The high cost partially reflects the obligations and liabilities of voluntary administrators, but also, perhaps, a tendency of voluntary administrators to ‘pad’ their hours. By racking up more hours with larger companies, it is possible that voluntary administrators are ‘cross-subsidising’ assetless administrations.

Unfortunately the Voluntary Administration process in Australia doesn’t facilitate any downside trading risk during a restructure. The problem discussed is this article is that the voluntary administrator is required to personally bear trading risk and this is a cold shower for any turnaround process.

Recent survey research from Professor Jason Harris draws out the views of industry insiders as to why voluntary administration may not be suitable for small to medium-sized enterprises (SMEs).

Voluntary administration – until recently the core statutory restructuring mechanism available for Australia businesses – is expensive. Generally speaking, a cheap voluntary administration costs between $30-50,000, all for a process that should be completed within two months.

Voluntary administrations have been in decline in Australia for 25 years. Here we examine why this might be, paying particular attention to the incidence of Deeds of Company Arrangement (DOCAs). Our conclusion is that a confluence of poor public reputation, expense and legislative change has led to the relative unpopularity of voluntary administration as a corporate restructuring methodology

Voluntary administrations can result in a deed of company arrangement, the winding up of the company or the end of the voluntary administration.

Once the DOCA is being administered, there is no longer a moratorium on ‘ipso facto’ clauses. In short, this allows suppliers, landlords and other creditors with suitable contracts to immediately terminate those contracts on appointment of the deed administrator. 

The purpose of voluntary administration in Australia is to rescue a struggling business and, where this is not possible, to get a better return for creditors than a straight winding up.