Once appointed by directors of a company, voluntary administrators possess very broad powers, duties and liabilities over the company to which they are appointed to act. It is critical these powers are clearly understood by both the administrator and the appointee before an administration commences.
Powers of an administrator
On appointment, the director’s powers are suspended and the administrator steps in and acts as an agent of the company. If the company is in a position to continue to trade, then the directors are often retained to manage the company’s day-to-day operations, however they are accountable to the administrators.
Duties of an administrator
First creditor’s meeting
The administrators must call a meeting of creditors to be held within 8 business days of the appointment of the administrator and the voluntary administration occurring. At the first meeting, creditors are permitted to replace the appointed administrator and appoint another. In this circumstance, written consent to act must be provided by the replacement administrator prior to this meeting and a resolution to replace the current administrator must be passed by the creditors in attendance.
The second issue to be decided at the meeting is a committee of creditors will be appointed. The committee can assist the administrator in the performance of his or her duties, monitor how the voluntary administration is to be carried out, approve certain steps in the administration and provide directions to the administrator. Importantly, the administrator is not required to follow directions put forward by the committee.
Second creditor’s meeting
The administrator must also call a second meeting of creditors to be held within 25 business days of appointment. The court may, on application to it, extend that period if the voluntary administration is of a more complex nature.
Prior to this second meeting, the administrator is required to investigate the company’s affairs and report the results of his or her investigations to the creditors and to the Australian Securities and Investments Commission (ASIC). During this 25-day period the administrator will also coordinate with the directors to see if it is possible to formulate a proposal for the company to enter into a Deed of Company Arrangement. The purpose of any proposal is to allow a plan to be put to the creditors to save the company and maximise the return to creditors. This will, if effective, prevent the winding up of the company.
Report to creditors
Once a proposal has been formulated, the administrator will prepare a report to creditors, detailing the investigations and making a recommendation as to whether he or she thinks the creditors should accept or reject the proposal. Creditors will then be requested to vote as to whether to accept the proposal at the second meeting.
At the second meeting, the creditors have to the option to:
- accept the director’s proposal and vote for the company to enter into a DOCA (if proposed),
- reject the director’s proposal and vote that the company be wound up, or
- vote that the Administration end and that control of the company be returned to the directors.
Personal liability of the Voluntary Administrator
Under section 443A and section 443B of the Corporations Act 2001 (Cth), a Voluntary Administrator is personally liable for the company’s debts incurred in the performance of the administrator’s functions and powers. This extends to services rendered, goods purchased, and property hired, leased, used or occupied by the company.
Therefore, the Administrator will need to satisfy itself that:
- the company has adequate assets that will be available to meet the statutory indemnity; and/or
- that the Administrator has a valid agreement with the principal creditors, the effect of which ensures the Administrator’s liabilities will be met.
Where the company has, prior to the Voluntary Administration, entered into an agreement by which they are entitled to use the property that someone else owns or leases, the Administrator has five business days to decide whether or not to continue to use the property.
The Administrator will be personally liable for amounts due under the agreement while he or she uses or is in possession of the property or goods, unless a notice is given by the administrator to the owner or lessor of the property within five business days after the beginning of the Voluntary Administration.
Entitlement to an Indemnity
A statutory indemnity is provided for under section 443D of the Corporations Act which entitles the administrator to a right of compensation out of the company’s property for remuneration and personal liabilities incurred during the Voluntary Administration period. This indemnity will have priority over debts of the company secured by a floating charge on property, unless the chargee has either commenced enforcement of or actually enforced the charge before the Voluntary Administration began.
What next?
If you would like to know more about how we can help you navigate through your voluntary administration matter or other insolvency proceeding, contact our office today for a confidential discussion on (07) 3036 0649. Our principal, Tracey Robinson, has successfully completed the ARITA Advanced Certification post graduate specialist accreditation course for restructuring and insolvency professionals.