Answer ... (a) Debtor
The debtor will be controlled in voluntary administration by the voluntary administrator and in a DOCA by the deed administrator, who act as the agents of the company.
(b) Directors of the debtor
The power of the directors of the debtor will be suspended during a voluntary administration as the administrator will have control of the company. Directors are required to cooperate with the administrators to ensure all necessary books, records and other information are made available to the administrators.
If the company goes from voluntary administration into a DOCA, the effect on directors will depend on the DOCA’s terms. When the DOCA is completed, the directors regain full control, unless the DOCA provides for the company to go into liquidation on completion.
(c) Shareholders of the debtor
Administration and DOCAs prioritise creditors over shareholders.
Shareholders cannot vote on the company’s future and cannot transfer their shares in the company during the administration without the administrator’s or court’s consent, though they can inspect the books and records maintained by the administrator.
Similarly, the deed administrator may transfer shares in the company only with the written consent of the shareholder or the court’s permission.
(d) Secured creditors
Secured creditors will be bound by a DOCA only if they vote in favour of it. They can submit claims for and vote in relation to their debt and vote at the meetings of creditors. As set out above, creditors with security over the whole or substantially the whole of the property of the company can enforce their security within 13 business days of being notified of the appointment of the administrator. Unless the administrator consents to extending this period, secured creditors cannot enforce their security interest in company assets over the course of the administration.
Secured creditors generally rank ahead of unsecured creditors. However, certain creditors (eg, employees) and the administrators will rank ahead of the secured creditor in respect of circulating assets (eg, cash, inventory and receivables) in circumstances where there would otherwise be insufficient funds to pay those claims in full.
(e) Unsecured creditors
Unsecured creditors can vote on the future of the company, however will be bound by a DOCA regardless of whether they vote in favour of it. They can enforce their debt claims only with the consent of the administrator or court.
Employees are not automatically terminated upon the appointment of an administrator, although the administrator has the power to terminate their employment as agent of the company. The administrator is personally liable for employee wages and salaries accruing subsequent to their appointment.
DOCAs must ensure that employee claims for certain unpaid employee entitlements (in respect of the period prior to the appointment of the administrator) are given priority over other unsecured claims and secured creditors’ claims in respect of circulating assets, unless the court approves an exclusion or the employees resolve at a meeting of creditors to accept an exclusion.
(g) Pension creditors
Australia’s mandatory pension (referred to as superannuation) system operates independently of the employer, such that employees and employers must contribute a percentage of an employee’s salary to a superannuation fund of the employee’s choice on a quarterly basis. Employees are entitled to be paid only such amounts from the superannuation fund as have been contributed throughout the course of their employment. Superannuation liabilities are afforded priority over other unsecured liabilities and claims are usually submitted by the Australian Taxation Office or the fund on behalf of the employee. There is generally no ‘final income’ pension system in Australia.
(h) Insolvency officeholder (if any)
The role of the voluntary administrator is to take control of the company, investigate the reasons for its failure and make recommendations to creditors as to the future of the company. The administrator’s key role is to assess whether any proposed DOCA would result in a better return to creditors than a liquidation.
Following the second meeting of creditors, the voluntary administrators will usually become either the administrators of the DOCA or the liquidator.
Voluntary administration is an out-of-court process. However, the court has a supervisory jurisdiction and may be called upon when there are questions regarding, among other things, the validity of the appointment of the administrators or the voluntary administration process. Similarly, when a DOCA is proposed during a voluntary administration, creditors or other interested parties can commence proceedings before the court to challenge the validity of the DOCA.
The court plays a more central role in schemes, holding at least two court hearings, reviewing and ultimately providing final approval of the proposed scheme.