In a word, no! They are vastly different procedures.

Voluntary administration is designed to resolve a company’s future direction quickly (the below table summarises the process). An independent and suitably qualified person (the voluntary administrator) takes full control of the company to try to work out a way to save either the company or its business.

If it isn’t possible to save the company or its business, the aim is to administer the affairs of the company in a way that results in a better return to creditors than they would have received if the company had instead been placed straight into liquidation. One mechanism for achieving these aims is a deed of company arrangement.

A voluntary administrator is usually appointed by a company’s directors after they decide that the company is insolvent or likely to become insolvent. Less commonly, a voluntary administrator may be appointed by a liquidator, provisional liquidator, or a secured creditor.

On the other hand, a liquidation is a procedure to wind up (liquidate) the company by selling its assets and using the proceeds of the asset sales to repay its debts. After being liquidated, a company ceases to exist.

A creditor can resort to this process if they have exhausted all other avenues to obtain payment for outstanding debts.

If a company owes $2,000 or more and can’t (or won’t) pay it, a creditor can take steps to have the court order the liquidation of the company. The process starts when the company or person who is owed the debt issues a “Creditor’s Statutory Demand”. If the target company fails to comply with a Creditor’s Statutory Demand within 21 days of receipt, the law will deem the company to be insolvent (unable to pay its debts).

The company or person who is owed the debt can then make an application to the court to have that company wound up (liquidated). If the court agrees, a liquidator will be appointed who is then responsible for winding up the company’s affairs.

The director(s) of a company will lose control immediately upon a liquidator being appointed.

A creditors’ voluntary liquidation (CVL) is a procedure in which the company’s shareholders (members) choose to voluntarily bring the business to an end by appointing a liquidator (who must be a licensed insolvency practitioner) to liquidate all of its assets.

This occurs when the company can no longer pay its debts as it is insolvent, or may become insolvent and permits an orderly realisation of the company’s assets, investigations, and allocation of the company’s assets amongst creditors.

The appointed Liquidator will act independently of the directors and shareholders and will ensure that the liquidation is conducted accordingly to applicable laws.

First and foremost, you seek independent insolvency advice from a specialist insolvency accountant or lawyer. If you then decide that a Creditors’ Voluntary Liquidation is right for you, you or your advisor will approach a liquidator.

The Creditors’ Voluntary Liquidation is commenced after the company’s shareholders pass a resolution that the company should be placed into liquidation and a liquidator be appointed.

A Creditors’ Voluntary Liquidation can also begin when creditors of a company in Voluntary Administration resolve that the company should not continue to a DOCA and be wound up (liquidated).

A company which has a current winding up application against it (and filed in a court) cannot appoint a liquidator whilst the application remains on foot.

A secured creditor is someone who has a ‘security interest’, such as a charge, in some or all of the company’s assets, to secure a debt owed by the company. Lenders usually require a security interest in company assets when they provide a loan.

When a business becomes insolvent, sale of the specific asset over which security is held provides repayment for this category of creditor.

Examples of Secured Creditors:

• Bank for a loan or overdraft;
• Finance company for finance used to purchase a motor vehicle

A secured creditor’s right to enforce their security is not affected by a company going into a creditors’ voluntary liquidation. A secured creditor will often allow a liquidator to sell charged assets during the course of the liquidation provided the rights of the secured creditor are maintained.

In most cases, liquidating a company terminates the employment of employees.

Employees have the right, if there are funds left over after payment of the fees and expenses of the liquidator, to be paid their outstanding entitlements (wages, superannuation, leave and termination pays, etc) in priority to other unsecured creditors. Priority employee entitlements are grouped into classes and paid in the following order:

1. Outstanding wages and superannuation
2. Outstanding leave of absence
3. Termination pay

Employees who are owed certain entitlement after losing their job because their employer went into liquidation, may be able to get financial help from the Australian Government. This help is available through the Fair Entitlements Guarantee (FEG) if the employer went into liquidation. FEG does not cover unpaid superannuation.

The appointment of a Liquidator in most cases prevents an unsecured creditor’s rights to pursue a company further for unpaid debts. Unsecured creditors are able to lodge a claim for the amount of their debt. Priority for an unsecured creditor is equal with all other unsecured creditors in the event of any distribution made available from the sale of assets.

An unsecured creditor which holds a personal guarantee in respect of company debts can proceed to enforce its rights against the guarantor under the guarantee.

The liquidator’s primary duty is to all of the company’s creditors. The shareholders rank behind the creditors and are unlikely to receive any dividend in an insolvent liquidation unless they also have a claim as a creditor.

In a court liquidation, the liquidator is not required to report to the shareholders on the progress or outcome of the liquidation.

Directors of companies in voluntary administration or liquidation lose control of the company and are no longer able to use the powers of their directorship.

If a director has been involved with two or more companies that have gone into liquidation within the last 7 years and paid their creditors less than 50 cents in the dollar, ASIC may disqualify them from managing corporations for up to five years. This effectively bans a person from acting as a director.

1. Investigate the conduct of the company, its shareholders, its directors, and associates of the company
2. Report offences committed by shareholders, directors, associates, and officers to ASIC
3. Realising the assets of the insolvent company and achieving the best possible price
4. Address outstanding claims against the company and satisfy the claims as set-out by law
5. Distributing the returns to the company’s creditors in order of priority
6. Acting in the best interests of the creditors (not the directors)
7. Investigate the failure of the company
8. Identify any transactions which can be voided e.g. sale of an asset to the related company at a non-arms-length price
9. Report to creditors and hold meetings

Put simply, Voluntary Administration (VA) is an insolvency workout where the directors of a financially troubled company appoint an insolvency expert called an external administrator.

Voluntary Administration is a process which enables the business, property (including contracts, debtors, trucks etc), and dealings of the company to be administered so that:

• It maximises the chances of a business to survive and continue to trade, and;
• It guarantees a better return for the people and companies who are owed money by the company, than what would be achieved by liquidating the company.

An Administration usually takes place over a period of between 25 to 30 business days but a complex Administration may last months.

A Voluntary Administration is a flexible process available under the law which enables a company time to enter into a binding legal agreement with the people and companies to which it owes money (creditors). This agreement is called a Deed of Company Arrangement (DOCA) – see next question for an explanation.

Ultimately the Deed of Company Arrangement is designed to save the company by enabling it to continue to trade, in turn saving the business, employee jobs and supporting the best possible return to creditors.

Outcomes:

• Support a company with recovery time to deal with creditors methodically and tender a proposal to the Administrator to stay out of liquidation and offer the best return to creditors employees
• Permits an insolvency practitioner to evaluate the company’s dealings and to take on the burden of dealing with the finance companies, banks, trade creditors and employees
• If an acceptable proposal cannot be agreed with the company’s creditors, the most likely outcome is for the company is then liquidation

A Deed of Company Arrangement is a legally binding document between a company in Administration and its creditors. A DOCA is essentially an agreement which states how and when the company’s creditors, including employees, banks etc, will be paid. It is usually created at the end of a Voluntary Administration and documents how the company’s affairs will be overseen.

Remember, a DOCA aims to trim down a business’s debt, improve management and oversight to enable a business to survive which in turn will provide a better return for creditors (including employees) than an immediate liquidation otherwise would.