Insolvency FAQ # 8 – What is the purpose of voluntary administration?
The Corporations Act 2001 (Cth) provides the legal framework for a company that is insolvent, or likely to become insolvent, to obtain some “breathing space” to enable the directors to formulate a plan to reorganise the financial affairs of the company and thereby avoid liquidation. The legislation requires the appointment of a voluntary administrator. Full control of the company is passed to the administrator whilst he/she tries to determine a way to either save the company and pay its creditors, or enter liquidation. In this instance, the aim is to manage the company’s affairs in such a way as to ensure a better return to creditors than they would have received if the company had been placed into liquidation.
