Overview of voluntary administration process

Appointing a voluntary administrator

A voluntary administrator is usually appointed after a company’s directors determine that the company is insolvent or is likely to become insolvent. The directors must make a resolution – in writing – to appoint a voluntary administrator, with the appointment beginning at the time of signing.

In addition, a voluntary administrator can also be appointed by a liquidator, provisional liquidator or a secured creditor. 

Key dates

The voluntary administrator will liaise with creditors throughout the appointment, however, there are two key meetings:

1. A first meeting of creditors is typically held within eight business days of appointment where they vote to replace the Voluntary Administrator or to form a committee of inspection.
2. A second meeting of creditors is typically be held within 25 business days of appointment where they must vote to:
   • accept a proposal – known as a Deed of Company Arrangement or DOCA – put forward by the directors
   • return the company to the directors’ control or put the company into liquidation.

Proposing a DOCA

Generally, the desired outcome of the voluntary administration process is the successful adoption and implementation of a DOCA put forward by the directors.

Typical DOCA terms include:

• How much money will be contributed into a DOCA fund
• Who these payments will be made by, i.e. from future trading profits, contributions from shareholders/third parties or from the sale of company assets
• When these payments will be made and who they will be distributed to – for instance, related party creditors or directors may agree not to receive a distribution from the fund to enhance the prospects of the DOCA being accepted by unrelated creditors
• Order in which funds are to be paid to creditors – for instance, a DOCA must specify that employees have priority unless eligible employees agree by a majority in both number and value to vary this
• Circumstances in which the DOCA is terminated and the consequences of failing to comply with the DOCA terms

A DOCA can have many forms and can be tailored to fit the individual circumstances facing the company. However, when preparing a DOCA, directors need to be mindful of:

• Their ability to comply with the terms of the DOCA. Failure to comply (with such things as payment dates) will usually result in the termination of the DOCA and the company entering liquidation.
• What terms the creditors are likely to agree to. This is especially important when a secured creditor is involved as they will only be bound by a DOCA if they have voted in favour of it.
• Whether the DOCA is shaped in a way that the voluntary administrator will recommend it to creditors. The voluntary administrator has an obligation to recommend the best course of action to creditors, including providing a recommendation on whether to vote in favour of the DOCA (the alternative being that the company be placed in liquidation).