A Voluntary Administration (VA) exists to provide for the business, property and affairs of an insolvent company to be administered in a way that:
The effect of the VA is to provide the company with time and protection from creditors while the company’s future is resolved.
There is a stay of proceedings issued against the company and a restriction on owners and lessors recovering property used by the company. However, a creditor with a general security interest may enforce its security interest within 13 business days after receiving notice of the appointment (as required by the Corporations Act) or within 13 business days after the day the administration begins.
Creditors will not receive payment of unsecured claims during the VA as they are statutorily frozen. If there are sufficient funds available for creditors, dividends will be paid after the VA; during either the subsequent deed of company arrangement or liquidation.
Any debts that arise from the administrator purchasing goods or services, or hiring, leasing, using or occupying property, are paid from the available assets as costs of the VA. If there are insufficient funds available from asset realisations to pay these costs, the administrator is personally liable for the shortfall.
While a company is under administration, the administrator:
The role of the administrator is to investigate the company’s affairs, report to creditors and recommend to creditors whether the company should enter into a deed of company arrangement, go into liquidation or be returned to the directors.
A creditor who wishes to nominate an alternative administrator must approach a registered liquidator before the meeting of creditors, with a written consent from an insolvency practitioner, stating that they would be prepared to act as administrator.
*Unless the Court allows an extension of time. Source: http://asic.gov.au/regulatory-resources/insolvency/insolvency-for-creditors/creditors-voluntaryadministration/
The administrator will notify creditors of the VA and convene the first meeting of creditors within three business days of the appointment.
The first creditors’ meeting is held within eight business days after the VA begins. The purpose of the first meeting is for creditors to decide two questions:
At the second meeting, creditors are given the opportunity to decide the company’s future. This meeting is usually held about five weeks after the company goes into VA (six weeks at Christmas and Easter).
In preparation for the second meeting, the administrator must send creditors the following documents at least five business days before the meeting:
The administrator is required to:
The administrator’s report should contain sufficient information to provide creditors with an understanding of:
A deed of company arrangement (DOCA) is a binding arrangement between a company and its creditors governing how the company’s affairs will be dealt with following a
Voluntary Administration (VA). It aims to maximise the chances of the company, or as much as possible of its business, continuing, or to provide a better return for creditors than an immediate winding up of the company, or both.
Any arrangement can be proposed to creditors. Commonly the proposal will provide for the payment of funds either as a lump sum after the signing of the DOCA, or by periodic
payments over some time period. It may also include the sale of assets owned by the company or the payment of part of the profits generated from continued trading or via third party funding.
Upon execution of the DOCA:
The company must sign the DOCA within 15 business days of the second creditors’ meeting, unless the Court allows a longer time.
If this doesn’t happen, the company will automatically be placed into liquidation, with the administrator becoming the liquidator.
A DOCA can be varied by a resolution passed at a meeting of creditors convened for that purpose but only if the variation is not materially different from the proposed variation set out in the notice of meeting.
The deed administrator (administrator) usually monitors the DOCA to ensure that the provisions are fulfilled and distributes dividends, where available. Control of the company usually reverts to the directors but the DOCA will provide the deed administrator whatever powers are necessary to fulfill the terms of the DOCA.
All creditors are required to submit a proof of debt, including copies of any relevant invoices or other supporting documents, to the administrator. Where funds are available, a dividend will be paid to all creditors whose claims have been agreed and admitted to rank for distribution. The order in which creditor claims are paid depends on the terms of the DOCA.
If the DOCA terms are not satisfied, it is considered to be in default. The deed administrator would usually issue a default notice, and if the default is not rectified within the period set out in the notice, the DOCA will be breached.
The DOCA may contain enforcement provisions or the deed administrator may have access to guarantees given in support of the DOCA. The DOCA may also be terminated by:
A DOCA will end:
A termination of the DOCA, where it does not achieve its objectives, will also usually lead to the liquidation of the company.
A creditors’ voluntary liquidation (CVL) exists to provide for the winding up of the affairs of the company and to provide for a fair and equitable distribution of the company’s property and assets amongst its creditors, and it allows for investigations into the company’s failure. It may only occur if the company is insolvent or likely to be insolvent. It can commence following a Voluntary Administration (VA) resolving that the company be wound up or by a resolution of the company’s shareholders.
The procedure may be used when:
A CVL can be initiated by circular resolution executed by the directors and shareholders or by holding separate meetings of directors and shareholders. In both cases, the steps in a CVL are shown on the following page.
A company that has a winding up application commenced against it cannot resolve to be wound up whilst the application remains on foot. There are two key steps in a CVL.
The liquidator must, within 10 business days after receiving the report on the company activities and property from the directors, lodge a copy with ASIC.
The liquidator must give creditors notice of their appointment and information advising creditors of the following:
The liquidator must also
The liquidator must provide a report to creditors within 3 months after their appointment. after appointment
There is no statutory requirement for the liquidator to provide further reports to creditors. However, a liquidator will often provide further reports to creditors updating them on the conduct of the liquidation.
In a creditors’ voluntary liquidation, a meeting may be requested in the first 20 business days by ≥ 5% of the value of unrelated creditors.
At any other time, a liquidator is not required to call a creditors’ meeting unless a matter requires creditor approval.
The liquidator can call a creditors’ meeting at any time and if directed to do so by the committee of inspection and/or creditors. Requests should be made in writing and creditors should provide security for the costs of calling and holding the meeting.
The liquidator is not required to comply with a direction to call a meeting given by a committee of inspection or creditors if that direction is not reasonable.
Once the liquidation has commenced, the liquidator takes control of the company assets and affairs and is the only one with power to bind the company.
Once a company is placed in liquidation, unsecured creditors cannot continue recovery action against the company unless the creditor obtains the leave of the Court.
The directors and officers lose their rights of management powers and authority to the liquidator. They are also required to provide information regarding the company’s financial position and assistance to the liquidator in undertaking his or her duties.
Liquidation brings to an end the normal operations of the company. It can only continue to trade so far as it is necessary for the beneficial disposal or winding up of the business and its assets.
Liquidation is the process that prepares a company for deregistration. The main reason for liquidation is because the company is insolvent. A Court liquidation is a compulsory winding up of a company where the liquidator is appointed by order of the Court.
Various parties including creditors, shareholders and directors of a company may initiate the Court process.
The most common petitioner is a creditor that is owed money.
Liquidation allows for the equitable and fair distribution of the company’s assets amongst its creditors. It allows an investigation of any improper conduct that may lead to the recovery of funds for creditors.
The liquidation involves the cessation of the business operated by the company, collecting of assets, realising and converting the assets to cash, dealing with the claims of creditors by admitting or rejecting them and distributing the net proceeds, after providing for costs and expenses, to the persons entitled.
Liquidation provides an orderly winding up of the company. The directors are not in control of the company as control rests with the liquidator.
Proceeds realised from the sale of non-circulating assets must be paid to the secured creditor. If there is a surplus, then this is paid to the company’s unsecured creditors.
The liquidator has a duty to:
An appointment of a provisional liquidator is usually made if there is a perception that the assets and affairs of the company are in jeopardy and that the ultimate effect of leaving assets in the hands of the company may be that the creditors and or shareholders will be disadvantaged. A court must be convinced that the assets of the company are in danger of being dissipated for the appointment to occur.
The Court has the power to appoint a provisional liquidator after the filing of an application for the winding up of a company and while the hearing of the winding up application is pending. The appointment gives interim control to a liquidator on a provisional basis until the final determination of the winding up application.
The primary role of the provisional liquidator is to preserve the status quo pending the hearing of the winding up application.
The principal duty of a provisional liquidator is to take into custody and control all the property of the company with a view to protecting and preserving it and to report to Court.
A provisional liquidation will come to an end either when a winding up order is made or when the application to wind up the company is dismissed or withdrawn.
A Court will terminate the appointment if the provisional liquidator has fulfilled his purpose.
The procedure may be used when: