When a small business faces financial difficulty and cannot keep up with the money it owes, voluntary administration provides a formal way to seek help and protect the company’s future. Voluntary administration bookkeeping steps and compliance are essential for Australian small businesses to understand, especially when the company enters voluntary administration. By focusing on clear records, open communication and meeting all legal requirements, business owners can give themselves the best chance of recovery while ensuring fair treatment for everyone involved, including employees and people the business owes money to.
This article explains what voluntary administration means, the key steps for bookkeeping and compliance during the process, and practical tips for small business owners to manage this challenging period. It will help you understand your responsibilities, what to expect from voluntary administrators, and how to work cooperatively with all parties to improve your company’s prospects.
What is Voluntary Administration?
Voluntary administration is a formal process under the Corporations Act that begins when a company enters financial trouble and its directors decide they need an independent person, called a voluntary administrator, to take control of the company’s business. The administrator is appointed to review the company’s financial circumstances, manage its affairs, and decide whether the business can continue trading, be restructured, or should close.
During the voluntary administration process, the directors no longer control the company’s assets or make major decisions. Instead, the administrator takes control of the company, including its property and records, and becomes responsible for reporting to all the creditors—the people and organisations the company owes money to. This process is designed to give the company breathing space from legal action by creditors, allowing time to assess the real options for the company’s future.
Struggling to keep up with your company’s record-keeping during voluntary administration?
Schedule a complimentary consultation with us today to make sure your business records meet ATO and administrator requirements.
The Role of the Voluntary Administrator
A voluntary administrator is a registered liquidator or other independent person appointed to manage the company’s affairs during the administration period. Their main tasks include:
Conducting a thorough investigation of the company’s financial health and business operations.
Reporting to creditors about the company’s position, including a summary of assets, debts incurred, and what money is owed.
Managing the company’s assets, which may include lease property, stock, equipment, and other company property.
Arranging creditors meetings where creditors vote to decide the company’s future, including whether to accept a proposed deal called a Deed of Company Arrangement (DOCA).
The administrator is required to act in the best interests of all creditors, both secured creditors (those who have a security interest in company assets) and unsecured creditors (those without such security). They must also ensure employee entitlements, such as unpaid wages, are properly recorded and, where possible, paid.
Essential Bookkeeping Steps During Voluntary Administration
When a company enters voluntary administration, keeping accurate and complete financial records is more important than ever. The administrator will need full access to all company books and records to understand the company’s affairs and make informed recommendations to creditors.
Preparing and Handing Over Records
Immediately after the administrator is appointed, the directors must hand over all company records. This includes bank statements, invoices, payroll records, lists of debtors and creditors, and details of any security interest held over company assets. The voluntary administrator’s investigation relies on these documents to present a true picture of the company’s financial circumstances.
It is also important to keep records of all new transactions during the administration period. The administrator or deed administrator (if a DOCA is approved) will continue to manage the company’s business and need up-to-date information to report to creditors and meet ongoing compliance requirements.
Compliance with Legal and Tax Obligations
Even during voluntary administration, the company must continue to meet its tax and reporting obligations. The administrator will ensure that all outstanding Business Activity Statements (BAS) and tax returns are lodged with the Australian Taxation Office (ATO). Current compliance is necessary if the company hopes to restructure and continue trading.
Employee entitlements, such as wages, superannuation, and leave, must also be properly recorded. In some cases, if the company cannot pay these amounts, eligible employees may be able to claim under the Fair Entitlements Guarantee, a government scheme that provides a safety net for workers when their employer has entered liquidation.
Communication with Creditors and Stakeholders
Regular communication is key throughout the voluntary administration process. The administrator must give business days’ notice for creditors meetings, including the first creditors meeting (usually held within eight business days of the appointment) and the second creditors meeting, where creditors vote on the proposed DOCA or other options for the company’s future.
At these meetings, creditors will have the opportunity to ask questions, receive updates on the voluntary administrator’s investigation, and vote on whether to approve a DOCA—a binding agreement that sets out how creditors will be paid and what will happen to the company. If creditors approve the DOCA, the deed administrator takes on the ongoing role of managing the company’s affairs under the terms of that agreement.
What if the Company Cannot Be Saved?
Sometimes, despite everyone’s efforts, the business cannot continue. If creditors do not approve a DOCA or if the administrator recommends that the company should be wound up, a provisional liquidator or registered liquidator may be appointed. In this case, the company’s assets will be sold, and the money will be distributed to creditors according to the priority set by law.
Directors need to be aware that if the company is found to have traded while insolvent (insolvent trading), they may face insolvent trading claims and could become personally liable for some company debts. This is why it is so important to seek professional advice early if your company is in financial trouble.
Practical Tips for Small Business Owners
These five essential strategies can make the difference between successfully understanding financial challenges and facing business closure, helping you protect your company, employees, and stakeholders while maintaining your professional reputation.
Act early: If your business is in financial difficulty, seek advice from a registered liquidator or qualified advisor as soon as possible.
Keep good records: Maintain clear and complete financial records at all times. This will save time and stress if the company enters voluntary administration.
Communicate openly: Be transparent with employees, suppliers, and other stakeholders about the situation. This helps maintain trust and can lead to more cooperative solutions.
Understand your obligations: Make sure you know your responsibilities under the Corporations Act, especially regarding employee entitlements, tax, and reporting.
Attend creditors meetings: Participate in creditors meetings to stay informed and have your say in the company’s future.
We’re more than bookkeeping experts
As part of ACT Tax Group, we offer complete accounting and business advisory services tailored to your needs.
Looking Ahead: The Company’s Future After Voluntary Administration
The outcome of voluntary administration depends on the company’s specific financial circumstances and the willingness of creditors to support a restructuring plan. If a DOCA is approved, the company may continue trading under new terms, giving it a chance to recover and rebuild. If not, the process may lead to liquidation, with the company’s assets sold and the proceeds distributed to creditors.
Regardless of the outcome, the experience can provide valuable lessons for company directors about managing risk, maintaining good records, and understanding the legal framework that applies when a business faces financial trouble.
Conclusion: Taking the Next Steps
Voluntary administration is a serious step for any business, but with careful planning, clear communication, and professional support, it can offer a way forward for companies in financial difficulty. By following the bookkeeping and compliance steps outlined above, small business owners can help ensure the best possible outcome for their company, its employees, and its creditors.
If your business is struggling, don’t wait until it’s too late. Reach out to experienced professionals who can guide you through the voluntary administration process and help you make informed decisions about your company’s future. Remember, acting early and keeping good records are the best ways to protect your interests and those of everyone connected to your business.
What steps will you take today to strengthen your business’s financial health and prepare for any challenges ahead?
