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Voluntary administration is often misunderstood. While many people, perceive it to be a terminal, close-the-doors, insolvency event, its actual purpose is very different. A voluntary administration is intended to protect business value, preserve jobs, and give viable businesses space and time to consider a restructure, and to keep trading.
Having spent 15 years helping businesses through periods of financial distress, I’ve experienced how powerful the voluntary administration (VA) regime can be to save businesses, especially when it's approached early and strategically.
Let me explain how it works, and then I’ll share a recent case study.
What Is Voluntary Administration?
Voluntary administration is a formal insolvency process designed to provide a company in financial difficulty with legal protection while an independent administrator (like me) assesses the business, its viability, and the best way forward.
Unlike liquidation, which usually involves closing the doors and selling assets, the VA aims to keep the business trading, retain staff, and maximise returns for creditors.
Critically, it also preserves key contracts that would otherwise terminate in liquidation and provides parties
The Role of a DOCA
A DOCAs a binding agreement between the company and its creditors that allows a company to be restructured as an alternative to being wound up in liquidation. A DOCA should provide creditors with a better return than if the Company were immediately wound up in a liquidation scenario.
A DOCA is a relatively flexible framework and can take many forms. It can involve a recapitalisation of a Company, a lump sum contribution from a third party, a redistribution of shares (subject to Court approval) or a contribution from the Company’s future trading profits. The DOCA will also set out how particular groups of creditors are dealt with.
Creditors ultimately decide the future of the Company. The voluntary administrator provides creditors with a comprehensive report on the Company’s history, affairs, operations, assets & liabilities and details of any proposed DOCA. The voluntary administrator will also provide creditors with a comparison, or estimated outcome statement, between a liquidation scenario or a DOCA, along with a recommendation. Creditors are then empowered to make an informed decision on how to vote.
A Case Study: 90 Jobs Saved and a Business Reborn
Following a referral from an accountant, I was approached by a director of a Company with a services business that had turnover of $7m, employed 90 staff and operated across several locations in WA.
After an initial consultation with the director and a review of the situation, it appeared the business was salvageable, subject to deeper analysis in a VA.
Shortly prior to the start of the COVID pandemic, the Company lent funds to a related company that had recently set up a hospitality business. Unfortunately, due to the restrictions imposed and forced venue closures during COVID, that business failed and could not repay the loan, putting financial pressure on the Company.
The Company was also experiencing a misalignment between creditor and debtor terms. Between this and the inability to recover the related party loan, it lead to the company suffering cash flow difficulties and an inability to keep up with tax bills.
This resulted in the Company owing creditors including the ATO approximately $1.5m. The ATO issued the Director with a Director Penalty Notice, or DPN (a tax office recovery tool to make directors liable for company debts).
To learn more about DPN click here.
At the time of our initial consultation, the Director was under great stress and pressure as a result of the situation.
Our Approach
We pragmatically approached the situation, and after our initial assessment, it seemed that whilst the Company was insolvent, its business appeared viable.
Shortly following our initial consultation, the Director appointed us as voluntary administrators to provide the Company with protection and time for the Director to consider whether to propose a DOCA.
We were able to take a hands-on approach working closely with the Director, the Company’s staff and the external accountant, and traded the business during the VA period. We also renegotiated terms with the major customer to assist with the cash flow difficulties the Company was facing.
During this time, the Director worked with his advisors to assess whether he was in a position to propose a DOCA that would see a fund being created for creditors, by way of payments from future trading profits from the Company over time.
The director was able to propose a DOCA that would see a pool of $900,000 made available, funded by a combination of cash held, debtor recoveries and quarterly payments over 24 months.
Our analysis showed this DOCA proposal would deliver a return of 45 cents in the dollar to unsecured creditors (compared to just 16 cents in a liquidation scenario). After undertaking an analysis of the cash flow statements on which the director was relying, it appeared that the proposed DOCA was achievable and given that it provided a significantly better return than liquidation, we recommended to creditors that they should vote to accept the DOCA.
The Outcome
All creditors participating voted in favour of the proposed DOCA. As a result, the business was able to continue trading, staff retained their jobs, and the director was able to maintain his livelihood. Importantly, the Company’s ongoing repayments under the DOCA also resolved the director’s personal liability under the DPN
This outcome was a positive result for all stakeholders involved: a stronger return for creditors, job security for staff, and the preservation of a viable business that otherwise may have been lost
Final Thoughts
Voluntary administration isn’t the end, when applied strategically, it offers a lifeline for businesses under pressure
It allows time to stabilise, preserve value, and work towards a realistic outcome that protects jobs and improves returns for creditors. For directors, it also provides certain legal protections and a chance to regroup.
If you or your client is facing financial stress, the most important step is to act early. The sooner advice is sought, the more options remain available.
Reach out for a confidential conversation, we’re here to help with experience, care, and a practical path forward.
