Less than 30% of all companies that enter a Voluntary Administration are successful. This is due to the mismanagement of the business prior and during the Voluntary Administration and the lack of knowledge of how it is done. With the right guidance and professional support, a Voluntary Administration can be an excellent tool to get a business back on track.

A Voluntary Administration will place a hold on all recovery action taken by creditors of the business including personal guarantees against the directors. The only exception to this would be a lender who has a mortgage over the assets of the business.

Directors can attract Personal liability for company debts from the severe insolvent trading provisions of the Corporations Act and the tough Director Penalty Notices (DPNs) issued by the Australian Taxation Office. DPNs require a company to pay various tax liabilities within 21 days or the directors will become personally liable for the debt, unless a Voluntary Administrator or liquidator is appointed. Therefore, one of the strengths of the voluntary administration process is that it limits director’s personal liability.

As a Voluntary Administration is all about allowing the company to continue its operations and not fall into Liquidation, it would be advised to continue to bring in more work to the business.

A Deed of Company Arrangement, often called a DOCA, is essentially the “deal” that is proposed to a company’s creditors in a Voluntary Administration. The aim of a DOCA is to maximise the chances of a company continuing, or to provide a better return for creditors than an immediate winding up, or liquidation, of the company.

The assets of the company will be valued in both outcomes of a Liquidation and Voluntary Administration. In the outcome of a DOCA, the assets will stay within the company as they were originally. Unless prior arrangement is made by the director and or Administrator.

The Australian Taxation Office will be treated as any other unsecured creditor. They may come across more aggressive but that would be due to their knowledge of this process. They can however take personal action against a director by way of debts including PAYG and Superannuation.

Payment of dividends to creditors under a DOCA is the same as the structure of payment of a dividend in a liquidation. So, the Deed Administrator will call for Proofs of Debt from creditors, admit and reject claims and then pay a dividend. All the timing and processes are set out in the Corporations Law. The order in which creditor claims are paid depends on the terms of the DOCA. Usually, the DOCA proposal is for creditor claims to be paid in the same priority as in a liquidation. Other times, a different priority is proposed. But, the DOCA must ensure employee entitlements are paid in priority to other unsecured creditors unless eligible employees have agreed to vary their priority.