Voluntary administration[edit]

Voluntary administration commences from the time when an administrator is appointed,^[54] and usually ends either upon the execution by the company of a deed of company arrangement or a resolution by the creditors that the company should be wound up.

An administrator may be appointed by:

• the company;^[55]
• a liquidator or provisional liquidator;^[56] or
• a chargee of the whole, or substantially the whole, of the company's property where the company is not already being wound up.^[55]

Upon their appointment an administrator is obliged to lodge a notice of appointment with ASIC in order to provide notification that the company is under external administration. The administrator must also publish a notice of appointment in a newspaper. Once an administrator is appointed, any use of the company's name must be followed by the words "(Administrator Appointed)".

Where the company is to survive as a going concern the aim of the voluntary administration process is the entering into of a deed of company arrangement. If a deed of company arrangement is executed it will lead to another administration, governed by the terms of the deed of company arrangement . Although both administrations are dealt with under the same part of the statute, the two are actually separate processes.

The administrator[edit]

An administrator must be a registered liquidator who gives consent in writing to accept their appointment. Various persons are disqualified from acting as a company's administrator, including creditors with an interest in the company over $5000, a director, secretary or employee of the company, a director, secretary or employee of a company that is a mortgagee to the company's property, or an auditor of the company.

The core role of the administrator is outlined in the legislation.^[54] Whilst a company is under administration, the administrator:

1. has control of the company's business, property and affairs; and
2. may carry on that business and manage that property and those affairs; and
3. may terminate or dispose of all or part of that business, and may dispose of any of that property; and
4. may perform any function, and exercise any powers, that the company or any of its officers could perform or exercise if the company were not under administration.

The administrator is also required to investigate the affairs of the company and consider any possible causes of action and report to creditors. As soon as practicable after the administration of a company begins, the administrator must:^[57]

1. investigate the company's business, property, affairs and financial circumstances; and
2. form an opinion about each of the following matters:
   1. whether it would be in the interests of the company's creditors for the company to execute a deed of company arrangement;
   2. whether it would be in the creditors' interests for the administration to end;
   3. whether it would be in the creditors' interests for the company to be wound up.

In carrying out these tasks the administrator acts as agent of the company.^[58] As such, the administrator has broad powers to deal with the company's property and carry on the company's business. The administrator is also entitled to the company's books and the officers of the company have an obligation to hand over any books in their possession. The directors are also required to provide the administrator with a statement about the company's business, property, affairs and financial circumstances within one week of the administrator being appointed, and must assist the administrator whenever reasonably required.

Effect of voluntary administration[edit]

The principal effects of voluntary administration are:

• the company's business, property and affairs come under the control of the administrator:^[54]
• the company's officers lose the right to use their authority and can only exercise that authority with the written approval of the administrator;
• the appointment of an administrator leads to a statutory moratorium meaning that legal proceedings, winding-up proceedings and execution against company property cannot be commenced or continued by creditors without written consent of the administrator or leave of the Court;
• the retention of the company's employees is ultimately within the administrator's discretion, and the administrator may terminate employees without incurring any personal liability;
• contracts with a company under administration are not automatically terminated - the appointment of an administrator does not reflect an intention on the part of the company to repudiate contracts already entered into, nor does it necessarily constitute a breach or repudiation of a continuing contract. This will however, depend upon the terms of the particular contract. Unlike a liquidator, an administrator does not have any statutory power to disclaim onerous contracts;
• while the company is in administration, the owner or lessor of property that is used or occupied by, or is in the possession of, the company cannot take possession of that property or otherwise recover it - except where a supplier of perishable property is entitled to recover those goods under section 441G or where the owner/lessor can obtain the administrator's written consent or the leave of the Court under;^[59]
• creditors who have supplied goods to a company pursuant to a contract which includes a retention of title clause, and the company then goes into administration, are often unable to recover the goods because of the restriction of section 440C provided the company is using the goods;
• where property is being used or occupied by the company in administration, but belongs to someone else, the administrator is only able to dispose of it in the ordinary course of business with the consent of the owner or with leave of the Court:^[59]
  • creditors are required to obtain leave of the Court to enforce guarantees against directors, their spouses, de facto spouses or their relatives;^[60] and
  • during the period of administration, the administrator controls all financial and other dealings of the company.

If the administrator, in good faith, makes a payment or enters into a transaction, that act is valid and effectual for the purposes of the Corporations Act and cannot be set aside in a subsequent winding up of the company

Voluntary administration[edit]

Voluntary administration commences from the time when an administrator is appointed,^[54] and usually ends either upon the execution by the company of a deed of company arrangement or a resolution by the creditors that the company should be wound up.

An administrator may be appointed by:

• the company;^[55]
• a liquidator or provisional liquidator;^[56] or
• a chargee of the whole, or substantially the whole, of the company's property where the company is not already being wound up.^[55]

Upon their appointment an administrator is obliged to lodge a notice of appointment with ASIC in order to provide notification that the company is under external administration. The administrator must also publish a notice of appointment in a newspaper. Once an administrator is appointed, any use of the company's name must be followed by the words "(Administrator Appointed)".

Where the company is to survive as a going concern the aim of the voluntary administration process is the entering into of a deed of company arrangement. If a deed of company arrangement is executed it will lead to another administration, governed by the terms of the deed of company arrangement . Although both administrations are dealt with under the same part of the statute, the two are actually separate processes.

The administrator[edit]

An administrator must be a registered liquidator who gives consent in writing to accept their appointment. Various persons are disqualified from acting as a company's administrator, including creditors with an interest in the company over $5000, a director, secretary or employee of the company, a director, secretary or employee of a company that is a mortgagee to the company's property, or an auditor of the company.

The core role of the administrator is outlined in the legislation.^[54] Whilst a company is under administration, the administrator:

1. has control of the company's business, property and affairs; and
2. may carry on that business and manage that property and those affairs; and
3. may terminate or dispose of all or part of that business, and may dispose of any of that property; and
4. may perform any function, and exercise any powers, that the company or any of its officers could perform or exercise if the company were not under administration.

The administrator is also required to investigate the affairs of the company and consider any possible causes of action and report to creditors. As soon as practicable after the administration of a company begins, the administrator must:^[57]

1. investigate the company's business, property, affairs and financial circumstances; and
2. form an opinion about each of the following matters:
   1. whether it would be in the interests of the company's creditors for the company to execute a deed of company arrangement;
   2. whether it would be in the creditors' interests for the administration to end;
   3. whether it would be in the creditors' interests for the company to be wound up.

In carrying out these tasks the administrator acts as agent of the company.^[58] As such, the administrator has broad powers to deal with the company's property and carry on the company's business. The administrator is also entitled to the company's books and the officers of the company have an obligation to hand over any books in their possession. The directors are also required to provide the administrator with a statement about the company's business, property, affairs and financial circumstances within one week of the administrator being appointed, and must assist the administrator whenever reasonably required.

Effect of voluntary administration[edit]

The principal effects of voluntary administration are:

• the company's business, property and affairs come under the control of the administrator:^[54]
• the company's officers lose the right to use their authority and can only exercise that authority with the written approval of the administrator;
• the appointment of an administrator leads to a statutory moratorium meaning that legal proceedings, winding-up proceedings and execution against company property cannot be commenced or continued by creditors without written consent of the administrator or leave of the Court;
• the retention of the company's employees is ultimately within the administrator's discretion, and the administrator may terminate employees without incurring any personal liability;
• contracts with a company under administration are not automatically terminated - the appointment of an administrator does not reflect an intention on the part of the company to repudiate contracts already entered into, nor does it necessarily constitute a breach or repudiation of a continuing contract. This will however, depend upon the terms of the particular contract. Unlike a liquidator, an administrator does not have any statutory power to disclaim onerous contracts;
• while the company is in administration, the owner or lessor of property that is used or occupied by, or is in the possession of, the company cannot take possession of that property or otherwise recover it - except where a supplier of perishable property is entitled to recover those goods under section 441G or where the owner/lessor can obtain the administrator's written consent or the leave of the Court under;^[59]
• creditors who have supplied goods to a company pursuant to a contract which includes a retention of title clause, and the company then goes into administration, are often unable to recover the goods because of the restriction of section 440C provided the company is using the goods;
• where property is being used or occupied by the company in administration, but belongs to someone else, the administrator is only able to dispose of it in the ordinary course of business with the consent of the owner or with leave of the Court:^[59]
  • creditors are required to obtain leave of the Court to enforce guarantees against directors, their spouses, de facto spouses or their relatives;^[60] and
  • during the period of administration, the administrator controls all financial and other dealings of the company.

If the administrator, in good faith, makes a payment or enters into a transaction, that act is valid and effectual for the purposes of the Corporations Act and cannot be set aside in a subsequent winding up of the company