Who Can Appoint A Voluntary Administrator

When a company faces financial distress, directors often grapple with difficult decisions.

One of the most strategic options available is voluntary administration, a formal insolvency process designed to give breathing space while exploring options to save the business or maximise returns to creditors.

What Is Voluntary Administration?

Voluntary administration is governed by Part 5.3A of the Corporations Act 2001. It involves appointing an independent registered liquidator (the administrator) to take control of the company, assess its financial position, and recommend a course of action - resulting in one of three outcomes:

• A Deed of Company Arrangement (DOCA)
• Liquidation
• Return of control to directors

Who Can Appoint a Voluntary Administrator?

1. Company Directors (Section 436A)

As a director, you have the power to appoint a voluntary administrator if you believe the company is insolvent or likely to become insolvent. This is the most common way to place the company into voluntary administration.

Example 1: Sheila is a director of a retail company in Western Sydney. After months of declining sales and mounting debts, she realises the business cannot meet its obligations. Rather than waiting for creditors to take action, she consults an insolvency practitioner and appoints a voluntary administrator. This gives the company a chance to restructure and propose a DOCA to creditors.

Example 2: Disagreement Among Directors.

Imagine a company with three directors: Alice, Bessie, and Cesar. The company is experiencing severe cash flow issues. Alice and Cesar believe the company is insolvent and want to appoint a voluntary administrator. Bessie disagrees, arguing that the business can recover without formal intervention.

In this case, Alice and Cesar can pass a board resolution by majority vote (2 out of 3) to appoint an administrator. Bessies opposition does not prevent the appointment, as unanimity is not required.

However, if the board is evenly split between two directors, where one supports and one opposes the appointment, the resolution cannot be passed. In such cases, directors may need to:

• Seek legal advice or mediation.
• Apply to the Court for orders under Section 447A to resolve the deadlock.
• Consider whether a secured creditor or liquidator might initiate administration under Sections 436C or 436B.

Tip for Directors: Keep the board meeting minutes clear and detailed when discussing insolvency concerns. If disagreement persists, early legal advice can help avoid delays that may worsen the company's financial position.

2. Secured Creditors (Section 436C)

A secured creditor with a charge over substantially all of the company's assets may also appoint an administrator. This typically involves a General Security Agreement (GSA) or an ALLPAAP (All Present and After-Acquired Property) charge, perfected under the Personal Property Securities Act 2009 (Cth).

Example: A bank holds a general security interest over a construction firm's assets. When the firm defaults on its loan, the bank may appoint an administrator to assess whether a DOCA or any other opportunity, such as a sale of the business, could recover more than liquidation.

3. Liquidators (Section 436B)

If the company is already in liquidation, the appointed liquidator may initiate a voluntary administration if they believe it would yield a better outcome for creditors than continuing liquidation.

Under Section 436B, the liquidator may appoint a voluntary administrator but must ensure the appointee is independent and not conflicted (e.g., not a partner or employee of the liquidator unless approved by creditors or the court).

Example: A company is placed into liquidation by court order following a creditor's petition. Upon appointment, the liquidator conducts a preliminary assessment and discovers that:

• The company's core business remains profitable and viable.
• The insolvency was triggered by a one-off event (e.g., a major legal dispute or supply chain disruption).
• The directors are willing to propose a Deed of Company Arrangement (DOCA) to repay creditors over time.

The liquidator believes that a voluntary administration could lead to a better result for creditors. In this case, the liquidator applies to the Court for leave to appoint themselves as administrator. The Court grants the order, staying the liquidation and allowing the voluntary administration process to proceed. Creditors later vote in favour of the DOCA, and the company avoids full winding up.

Key Considerations for Directors

• Timing is critical: Early action can preserve value and improve outcomes.
• The administrator must be a registered liquidator: Choose someone independent and experienced.
• Directors' powers are suspended: Once appointed, the administrator takes control of the company's operations and decisions.
• Creditor meetings follow: Within approximately a month, creditors will meet to decide the company's future.

Conclusion

Voluntary administration is a powerful tool for directors facing insolvency. By acting early and appointing a qualified administrator, directors can protect the business, employees, and creditors - and potentially steer the company toward a more favourable outcome for all stakeholders.

Need Help? Worrells Can Assist

If you're considering voluntary administration, Worrells offers expert insolvency and turnaround services tailored to your business's unique circumstances. Our team of registered liquidators can guide you through the process with clarity, compassion, and strategic insight, contact us today.

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.