Australia: Restructuring In The Not-For-Profit Sector Part 1: Voluntary Administration

Last Updated: 12 October 2018
Article by Campbell Hudson and Lis Boyce


The voluntary administration process can be an effective restructuring tool for Not-for-Profit ('NFP') entities that are facing financial difficulties.

This article will focus on the need for directors of NFP entities that may be verging on insolvency to look at the advantages of appointing a voluntary administrator.

The appointment of a voluntary administrator may limit the risks of the director being personally liable when a NFP entity continues to trade while insolvent, as well as provide some breathing space for the NFP entity to restructure its affairs through the imposition of a statutory moratorium.

In Part 2, we will set out in more detail the restructuring outcomes of the voluntary administration process.

The position of directors of a Not-for-Profit that may be insolvent

A director may be confronted with their NFP entity having significant difficulty in paying their debts as and when they fall due. It may be that the NFP is insolvent.

Directors of a NFP entity that is a company limited by guarantee who are facing this situation must understand the insolvent trading provisions of the Corporations Act 2001 (Cth) ('Corporations Act').

Briefly, these provisions set out:

  • the duties of the directors of the NFP entity;
  • personal liability of directors;
  • possible defences to the insolvent trading provisions; and
  • a statutory defence to insolvent trading claim for directors, who, after suspecting the company's insolvency, start developing one or more courses of action that are reasonably likely to lead to a better outcome for the company (the 'safe harbour' protection).

Furthermore, if the NFP entity is a registered charity with the Australian Charities and Not-for-Profits Commission (ACNC), the directors are also subject to 'Governance Standards' that charities must comply with in order to become registered, or remain registered, with the ACNC.  These duties are largely consistent with the Corporations Act and include a duty to ensure that the registered charity's financial affairs are managed responsibly and not to allow the registered charity to operate while insolvent.

A NFP entity may face financial difficulties due to various factors.  Whatever the cause may be, the directors of a NFP entity have a two-fold duty.  Namely:

  • to prevent insolvency; and
  • to act diligently and properly if insolvency does occur.

    More significantly, if the directors of the NFP entity do not take any action to manage the financial difficulties of the company, they are at risk of breaching their duties to prevent insolvent trading and could become personally liable for debts incurred by the NFP entity.

Voluntary administration

As a result of amendments made to the Corporations Act which came into effect in September last year, directors can now (additionally) manage their insolvent trading risk by instigating a safe harbour procedure, which effectively requires the implementation (in consultation with professional advisers) of a corporate turnaround plan.  There are, however, certain prerequisites which apply to this process and it may not always be a prudent option.

A more traditional option, and that discussed in this article,  is to appoint voluntary administrators under Part 5.3A of the Corporations Act.

Voluntary administration can be an effective statutory process that facilitates the restructuring and reorganisation of the NFP entity's business, property and affairs.

The object of voluntary administration is to ensure that the business, property and affairs of the NFP entity are administered in a way that:

  • maximises the chances of a NFP entity's operations continuing; or
  • results in a better return for the creditors and members than from the immediate winding up/liquidation of the NFP entity.

Key benefits of the voluntary administration process

Key benefits of the voluntary administration process include:

  • the statutory moratorium afforded to the NFP entity.In the absence of the voluntary administrators' written consent or a court order, the voluntary administration process prevents any creditor from commencing or proceeding with any legal proceedings or execution process against the NFP entity or in relation to its property (for example, a landlord re-entering into possession).
  • that claims under any personal guarantees given by the directors for debts due by the NFP entity are suspended.This is to encourage directors to assist with the voluntary administration process.
  • the ipso facto protections which apply to contracts entered into from 1 July 2018.In essence, these reforms restrict a contracting counterparty from terminating a trading contract merely as a result of the company's insolvency. Importantly, however, the ipso facto protections are only available to companies in administration or that enter liquidation as a result of an earlier administration.

Warning signs of insolvency

The following issues may result in the directors of a NPF entity resolving to place the NFP entity into voluntary administration:

  • continued losses over successful financial reporting periods;
  • inability to borrow funds or obtain any loan approvals;
  • poor state of internal controls;
  • inability to produce timely and accurate information on the NFP entity's performance and financial position; or
  • over-reliance on state and federal government funders (for example, the National Disability Insurance Agency) and inadequate internal processes to allow for timely claim-based funding.

Although the NFP entity may have a strong balance sheet, it may still face severe liquidity issues due to delays in receiving external funding.  This may result in the NFP entity being unable to meet its debts as and when they fell due.

To avoid any risk of insolvent trading, the directors of a NFP entity may wish to resolve to place the NFP entity into voluntary administration.

How can the voluntary administration process assist?

Generally, the voluntary administration process concludes within 25 business days.  This timeframe can be extended by court order or by the creditors (where appropriate).

Given the statutory timeframes and reporting obligations associated with the voluntary administration process, the voluntary administrators must quickly diagnose the operational problems of the NFP entity.

The moratorium provides the necessary breathing space for a NFP entity to reallocate limited cash resources for restructuring its operations and to identify any operational problems.  This can enable the voluntary administrators to undertake activities such as:

  1. securing and reviewing the books and records of the NFP entity, including reviewing and assessing the viability of the NFP's units and preparing financial statements;
  2. complying with statutory obligations such as preparing reports to creditors as well as liaising with statutory authorities such as the ATO and ACNC;
  3. communicating with government authorities and government funding organisations and receiving assurances of funding support;
  4. communicating with the employees and various stakeholder groups to verify and reconcile any entitlement claims;
  5. procuring funding from mainstream financial institutions on favourable financial terms in keeping with the NFP entity's purpose;
  6. enabling the continued operation of the NFP entity's businesses from existing premises despite termination of leasing arrangements of those premises;
  7. engaging external experts to review the NFP entity's internal controls and implementing measures to ensure the future integrity of the NFP entity's systems; and
  8. preparing and implementing an expression of interest campaign to divest of any non-performing assets, including real property and/or parts of the NFP entity's service offerings.


The voluntary administration process generally affords directors of possibly insolvent NFP entities protection from personal liability.  In addition, the statutory moratorium imposed by the voluntary administration process allows the voluntary administrators to take over control of a NFP entity's operations and afford temporary relief to the NFP entity by protecting it from creditors' claims.

It may also afford an opportunity for the voluntary administrators to create temporary cash flow improvement to facilitate a possible restructuring of the NFP entity's existing arrangements.

An example of an effective restructure may be if the NFP entity remains as a standalone entity continuing its operations, or is merged with a larger compatible NFP entity.

The underlying theme of this paper is to highlight the flexibility afforded by the voluntary administration process which may well allow the NFP entity to sustainably continue serving its purpose.

In Part 2, we will examine the three possible outcomes of the voluntary administration process for the NFP entity:

  • the voluntary administration process ending and control reverting back into the hands of the directors of the NFP entity; or
  • the NFP entity entering into a creditor-approved deed of company arrangement; or
  • the NFP entity being placed into liquidation.

This article was contributed to by Graduate Eshan Khot.

About Dentons

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
30 Jan 2019, Other, Chicago, United States

Please join us on January 30, 2019, for the Fifth Annual Courageous Counsel Leadership Institute. This year's theme is "Risk and reward: Creating a culture that promotes innovation, change and growth.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions