The aim of this process is to help the company avoid liquidation. An independent insolvency professional is appointed to control the company to work out a way to save the company (or the company’s business), and based on the examination of company affairs, the administrator may be able to restructure the company using a Deed of Company Arrangement (DOCA). If a restructure is not possible, the administrator will aim to provide a better return for creditors than that resulting from liquidation.
Putting a company into voluntary administration can be done by director/s calling a meeting of the board of the company, resolving that the company is insolvent, or likely to become insolvent, and resolving that a suitably qualified (should be a registered liquidator) voluntary administrator should be appointed.
Creditors’ voluntary liquidations
When a company is insolvent or will likely become insolvent, directors can opt for a Creditors’ Voluntary Liquidation that will allow an appointed Liquidator to:
- Wind up the company without court intervention
- To collect, protect and realise the company’s assets and distribute among creditors
- Investigate how the company became insolvent and possible offences by people involved
Once complete, the liquidator will deregister the company with ASIC and creditors can no longer make claims against the company.
Member voluntary liquidations
An MVL is used to wind up the affairs of a solvent company that can pay its debts within 12 months of commencement. This may be because the company is no longer needed, or the directors and shareholders no longer want to retain the company structure. It ensures the protection of creditors and its members’ interests while the company structure is dismantled.
Official liquidation (court-appointed)
This occurs when creditors, company members or other stakeholder apply to the Court to wind up a company due to unpaid debts. A liquidator is appointed by the Court to administer the insolvency process by:
- Liquidating company’s assets and disburse funds to creditors
- Investigate the company’s affairs and report any offences to shareholders
Deed of Company Arrangement (DOCA)
A DOCA may be agreed to as a result of the company entering voluntary administration. The document aims to maximise the chances of the company (or the company’s business) to recover; or to provide a better return for creditors than that resulting from liquidation.
A formal agreement is created between all participants in a company outlining the way forward and how to distribute assets to creditors. The DOCA is designed to give the business time and a formal structure to continue to trade on in a profitable way.
A company in receivership has a receiver appointed by a secured creditor who holds a security interest over some or all the company’s assets. The receiver’s primary role is to collect and sell enough of the company’s collateral (property) to repay the debt owed to the secured creditor. A registered liquidator can then advise company directors before or after the appointment of a receiver.