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Voluntary Administration

Discussion in 'Investing Glossary' started by Glossary, 28th Sep, 2006.

  1. Glossary

    Glossary Active Member

    Joined:
    12th Sep, 2006
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    25
    Definition:

    Voluntary administration is a mechanism for companies in financial distress to obtain some breathing space from its creditors.

    Under Part 5.3A of the Corporations Act, the stated goal of administration is to:
    • allow the company to avoid liquidation and to have the company administered in such a way that maximizes the chances of the company and its business continuing; or
    • if it can't continue, to allow a better return for the company's creditors and shareholders than would result from the liquidation of the company.
    In a voluntary administration, the process commences when the board of the company appoints an administrator in writing. The board would do so if it reached the view that the company is or is likely to become insolvent and that appointment of an administrator is appropriate.

    The administrator then holds the first meeting of creditors within 5 days of his or her appointment and a second meeting, to decide the company's future, within 28 days.

    There are three possible outcomes from a voluntary administration, namely:
    1. a deed of company arrangement (or DOCA) is entered into; or
    2. the creditors of the company resolve to end the administration and the company keeps on trading; or
    3. the company's creditors resolve to wind up the company.

    See also: