Part 15A, Companies Act 1993
Voluntary administration in New Zealand
Voluntary administration gives a company a statutory pause. An independent administrator takes control for a short period, the company gains breathing space from most claims, and creditors then decide together whether the company can be saved.
What voluntary administration is
Voluntary administration is a process under Part 15A of the Companies Act 1993. When a company is, or is likely to become, unable to pay its debts, an independent administrator can be appointed to take control of it for a limited time. The administrator's task is to investigate the company's affairs and to form a view on whether the company, or at least its business, has a realistic prospect of being saved.
The aim is to maximise the chance of the company continuing, or, if that is not possible, to produce a better return for creditors than an immediate liquidation would. It is a structured, time-limited process designed to bring order to a difficult moment and to give everyone involved a clear basis on which to decide what happens next.
Who can appoint an administrator
An administrator is most commonly appointed by the company's board of directors, where the directors resolve that the company is, or is likely to become, insolvent. In certain circumstances a liquidator, or a secured creditor holding a charge over the whole or substantially the whole of the company's property, may also appoint an administrator. The administrator must be a person who is eligible to take the appointment under the Act.
The moratorium: breathing space
Once an administration begins, a statutory moratorium takes effect. In broad terms, this restricts creditors from enforcing claims and pursuing or continuing legal proceedings against the company without the administrator's consent or the leave of the court. The practical effect is to hold the position steady so that the company's affairs can be assessed calmly, rather than the value of the business being eroded by separate enforcement actions.
The moratorium is not a way to avoid obligations indefinitely. It is a temporary measure that lasts for the limited period the legislation allows, and it exists so that a considered decision can be made about the company's future.
The watershed meeting and the three outcomes
The administration leads to a decisive creditors' meeting, commonly called the watershed meeting. By this point the administrator will have investigated the company and reported to creditors with a recommendation. Creditors then vote on the company's future, and there are three possible outcomes:
- The company is returned to the directors' control. Where the difficulty has been resolved or the company is found to be solvent, control can pass back to the directors and the administration ends.
- The company enters a Deed of Company Arrangement. Creditors approve a binding arrangement that sets out how the company's affairs will be dealt with, often allowing the business to continue.
- The company is placed into liquidation. Where there is no viable path forward, creditors resolve that the company should be wound up, and a liquidator deals with its affairs.
How a Deed of Company Arrangement works
A Deed of Company Arrangement, often shortened to a DOCA, is the mechanism that allows a company to emerge from administration on agreed terms. At a high level, it is a binding agreement between the company and its creditors. It can provide for matters such as a contribution of funds, a timetable for payments, the release of certain claims on completion, or the continued trading of the business under agreed conditions.
The intention is to deliver creditors a better outcome than they would receive from an immediate liquidation, while giving a viable business the chance to recover. Once creditors vote to enter a Deed of Company Arrangement, its terms govern what happens, and the deed is overseen so that the company meets its commitments.
When it is, and is not, suitable
Voluntary administration tends to suit a company that has an underlying business worth preserving and a realistic prospect of a better return for creditors than immediate liquidation. It can be valuable where time and independent oversight are needed to test whether a rescue is achievable.
It is less likely to help where there is no viable business to save, where the cost and formality of the process would simply reduce what is available to creditors, or where another route, such as a creditors compromise, receivership or liquidation, is a better fit. We will look at the specifics of your situation and tell you honestly whether voluntary administration is the right tool, or whether another option would serve you better.
The process
How a voluntary administration runs
Every situation is different, but a voluntary administration generally follows the same broad path under the Companies Act 1993.
Appointment of an administrator
An eligible administrator is appointed, commonly by the board, and immediately takes control of the company for the period of the administration.
The moratorium takes effect
A statutory moratorium gives the company breathing space by restricting the enforcement of most claims while its position is assessed.
Investigation and first meeting
The administrator investigates the company's affairs and an early creditors' meeting is held in line with the Act.
Report to creditors
The administrator reports on the company's position and sets out a recommendation on the way forward for creditors to consider.
The watershed meeting
Creditors meet and vote on the company's future, choosing between return to the directors, a Deed of Company Arrangement, or liquidation.
The chosen outcome is carried out
The decision is implemented, whether that is a deed of arrangement administered to its terms or an orderly liquidation.
Common questions
Voluntary administration questions
What is voluntary administration?
Voluntary administration is a process under Part 15A of the Companies Act 1993. An independent administrator is appointed to take control of the company for a limited period and to assess whether the company, or its business, can be saved. While the administration runs, a statutory moratorium gives the company breathing space by restricting the enforcement of most claims, so its position can be considered in an orderly way rather than under immediate pressure.
What is a Deed of Company Arrangement?
A Deed of Company Arrangement, often shortened to a DOCA, is a binding agreement between the company and its creditors that sets out how the company's affairs will be dealt with. It can provide for matters such as a contribution of funds, a timetable for payments, or the continued trading of the business, with the aim of producing a better outcome for creditors than an immediate liquidation. If creditors vote at the watershed meeting to enter a Deed of Company Arrangement, its terms then govern what happens next.
How long does the moratorium last?
Voluntary administration is designed to be a short process, with the moratorium running for the limited period the legislation allows while the administrator investigates and creditors meet to decide the company's future. The exact periods and any extensions are set by the Companies Act 1993 and can vary with the circumstances, including where the court or creditors agree to more time. We will explain the timeframe that applies to your situation before anything is put in place.
When is voluntary administration not the right option?
Voluntary administration suits a company that has an underlying business worth preserving and a realistic prospect of a better outcome for creditors than immediate liquidation. It is less likely to help where there is no viable business to save, where the cost and process would simply erode value, or where another route such as a creditors compromise, receivership or liquidation better fits the situation. Part of our role is to tell you honestly whether voluntary administration is appropriate before you commit to it.
Considering voluntary administration?
The sooner you take advice, the more options are likely to be open. A short, no-obligation conversation will help you understand where things stand.