Purpose of VA

Voluntary Administration (VA) is a statutory process under the Corporations Act designed to provide companies in financial distress with an opportunity to restructure, preserve value, and deliver better outcomes for creditors than an immediate liquidation.

Here’s why VA is useful:

1. Immediate Breathing Space
   • VA imposes a statutory moratorium: creditors are stayed from enforcing claims, landlords can’t terminate leases for arrears, and secured creditors (with some exceptions) are restricted from repossessing.
   • This gives directors and administrators time to assess whether the company can be saved, rather than being forced straight into liquidation.
2. Independent Control
   • An external administrator takes control from directors. This brings credibility with creditors who may have lost trust in management.
   • The administrator has statutory duties to act in creditors’ best interests, not just the directors’.
3. Exploring a Restructure (DOCA)
   • VA provides a pathway to a Deed of Company Arrangement (DOCA), which can:
     • Compromise creditor claims.
     • Preserve goodwill, jobs, and contracts.
     • Deliver creditors a better return than liquidation.
   • Many businesses survive under a DOCA where liquidation would have destroyed value.
4. Protecting Value of the Business
   • In a distressed situation, value can erode quickly if creditors rush in.
   • VA helps preserve trading businesses as going concerns while options are explored (e.g. recapitalisation, sale, or restructure).
5. Encouraging Early Action
   • For directors, VA provides a structured, court-supervised mechanism to deal with insolvency — without the personal liability risks that come with insolvent trading if they simply “wait it out.”

But — Limitations:

• Costs: VA is expensive (suited more to medium-to-large businesses, not small ones).
• Stigma: Some customers, landlords, or suppliers lose confidence as soon as VA is announced.
• Timeframe: The VA process is short (usually 20–25 business days), which can make complex restructures difficult.
• Creditor Control: Creditors ultimately decide — so if they don’t see value, they’ll vote for liquidation anyway.

Case Studies in Common Industries

Here’s are examples in two common industries where a VA is used: café group (hospitality) and construction company (building and construction).

Example 1 – Café Group

The Situation

A group operating 10 cafés across Sydney falls behind on rent and owes the ATO $2 million. Sales are steady, but several sites are unprofitable. The landlord of two key locations has issued default notices.

Action: VA

The directors appoint a Voluntary Administrator. During the VA:

• Moratorium applies – landlords and the ATO can’t take action while the administrator assesses options.
• The administrator keeps profitable cafés trading and closes unprofitable sites quickly.
• A DOCA is proposed:
  • creditors accept 30 cents in the dollar over 3 years;
  • the group’s head office is downsized; and
  • unprofitable leases are disclaimed.

Outcome

• 7 cafés continue trading under leaner operations.
• 150 jobs are saved.
• Creditors receive more than they would have in liquidation.

Example 2 – Construction Company

The Situation

A building company with $50m turnover runs into cash flow problems. Rising material costs and delays cause $5m in losses. Subcontractors are unpaid and threatening to walk.

Action: VA

The company enters VA.

• Subcontractors are reassured because an independent administrator is in control.
• The administrator negotiates with major creditors (banks and suppliers).
• A DOCA is proposed:
  • a new investor injects $3m;
  • creditors accept 40 cents in the dollar; and
  • projects are completed under administrator oversight, protecting warranties and customer confidence.

Outcome

• The company survives under new ownership.
• Projects continue, avoiding a messy collapse.
• Creditors receive a better return than liquidation.

How Levi Consulting can help

David Levi is founder of Levi Consulting. David Levi is a highly experienced subject matter expert on restructuring. He is qualified to act as a voluntary administrator and/or restructuring practitioner for formal and also informal procedures. Levi has extensive experience in a range of restructuring, insolvency, special situations and distressed transactions.