BTF5955 · Business and Company Law
External Administration: Receivership & Voluntary Administration
Topic 12 covers what happens when a company is in financial distress: receivership (a secured creditor appoints a receiver to realise charged assets) and voluntary administration (a rescue process aimed at the s 435A object, run by an administrator and resolved at the creditors' watershed meeting, often by a deed of company arrangement). One exam-critical point: liquidation is expressly NOT examinable — its slides are provided for learning only — so focus your exam revision on receivership and voluntary administration.
What this chapter covers
- 01Insolvency threshold — s 95A: a company is solvent if it can pay all its debts as and when they fall due (the cash-flow test); otherwise insolvent
- 02External-administration overview: receivership, voluntary administration (+ DOCA), and liquidation (liquidation is NON-EXAMINABLE — learning only)
- 03Receivership: a receiver (usually a receiver and manager) appointed by a secured creditor (or the court) to realise the secured property
- 04The receiver's duty on sale — s 420A: take reasonable care to sell for market value / the best price reasonably obtainable
- 05Voluntary administration — Part 5.3A; the object in s 435A: maximise the chance the company (or its business) continues, or produce a better return than immediate winding up
- 06Appointment of an administrator — most commonly by the board/directors where the company is insolvent or likely to become insolvent (s 436A); administrator's control (s 437A) and the moratorium
- 07The second (watershed) creditors' meeting — s 439C: creditors decide to execute a DOCA, end the administration, or wind the company up
- 08Deed of Company Arrangement (DOCA): a binding compromise between the company and its creditors to achieve the s 435A object
IRAC on the insolvency pathway: a secured default while trade creditors press
- +1Issue. Which external-administration processes are available on these facts — for the secured lender and for the directors — and what is the object of each?
- +2Rule — solvency and receivership. Solvency is the cash-flow test in s 95A: a company is solvent if it can pay all its debts as and when they fall due. A secured creditor may appoint a receiver (usually a receiver and manager) to take control of and realise the charged property to repay the secured debt; on sale the receiver owes a duty under s 420A to take reasonable care to sell for market value or the best price reasonably obtainable, and acts primarily in the appointing creditor's interests.
- +2Rule — voluntary administration. Voluntary administration (Part 5.3A) has the object in s 435A of maximising the chance the company (or its business) continues, or, if that is not possible, producing a better return for creditors than immediate winding up. The directors may appoint an administrator where the company is insolvent or likely to become insolvent (s 436A); the administrator takes full control (s 437A) and a moratorium stays most creditor actions during the administration.
- +1Application and Conclusion. The secured lender can appoint a receiver over the charged equipment to realise it and repay the secured debt (subject to the s 420A sale duty). Separately, because the directors believe the company is insolvent but potentially viable if restructured, they can place it into voluntary administration under s 436A; the administrator takes control, a moratorium halts the trade creditors' actions, and the creditors decide the company's future at the s 439C watershed meeting — typically by executing a DOCA if restructuring offers a better return. Conclusion: receivership serves the secured creditor over its collateral, while voluntary administration (with a possible DOCA) is the rescue path the directors should pursue for the whole company. (Liquidation is outside the exam scope.)
Key terms
- Solvency (s 95A)
- A company is solvent if, and only if, it is able to pay all its debts as and when they become due and payable — the cash-flow test. A company that is not solvent is insolvent. This threshold underlies insolvent trading (s 588G) and every external-administration process.
- Receivership
- A process where a receiver (usually a receiver and manager) is appointed — typically by a secured creditor under a security interest, or by the court — to take control of and realise the secured property to repay the secured debt. The receiver acts primarily in the appointing creditor's interests; the directors' powers over the charged assets are suspended.
- Receiver's duty on sale (s 420A)
- When selling property of the company, a receiver must take reasonable care to sell it for not less than its market value (or, if there is no market value, the best price reasonably obtainable in the circumstances).
- Voluntary administration (s 435A object)
- A Part 5.3A rescue process whose object (s 435A) is to administer an insolvent company's affairs to maximise the chance of the company (or its business) continuing, or, failing that, to produce a better return for creditors than an immediate winding up.
- Administrator's control & moratorium (s 437A)
- On appointment the administrator takes full control of the company and its business (s 437A), and a statutory moratorium stays most creditor enforcement and proceedings during the administration, giving the company breathing space to be assessed or restructured.
- Deed of Company Arrangement (DOCA)
- A binding arrangement between the company and its creditors, decided at the s 439C watershed meeting, setting out how the company's affairs will be dealt with (typically a compromise of debts) to achieve the s 435A object — often a better return than immediate liquidation.
External Administration: Receivership & Voluntary Administration FAQ
What is the difference between receivership and voluntary administration?
They serve different interests. Receivership is driven by a secured creditor: a receiver is appointed to take control of and realise the charged assets to repay the secured debt, and the receiver acts primarily for the appointing creditor (owing a s 420A duty to obtain market value on sale). Voluntary administration is a company-wide rescue process under Part 5.3A: an administrator takes control with the s 435A object of saving the company or its business, or otherwise getting creditors a better return than immediate winding up, with the creditors deciding the outcome at the watershed meeting. The two can run at the same time over the same company.
How is a company placed into voluntary administration, and what happens next?
Most commonly the board resolves to appoint an administrator under s 436A where the company is insolvent or likely to become insolvent (a secured creditor or a liquidator can also appoint). The administrator immediately takes full control of the company (s 437A) and a moratorium stays most creditor actions. After investigating, the administrator convenes the second (watershed) creditors' meeting, where under s 439C the creditors choose one of three outcomes: execute a Deed of Company Arrangement, end the administration and hand the company back to the directors, or wind the company up.
Is liquidation examinable in BTF5955?
No. This is an important exam-scope point: the Topic 12 material on liquidation is expressly non-examinable — the slides are provided for learning only. The examinable insolvency content is receivership and voluntary administration (including the s 435A object and the DOCA process). So while it is worth understanding liquidation for context, you should focus your exam revision on the receivership and voluntary-administration pathways, and you will not be asked to work a liquidation problem in the final.
Can Sia help me with external-administration problems?
Yes, as a study aid. Sia can walk you through the insolvency pathways on fresh facts — matching receivership and voluntary administration to who is acting and their objects — explain the s 95A solvency test and the DOCA process, and check whether your IRAC answer named the correct object for each process. It explains the method and checks your reasoning; it does not do your graded assessment, and Monash academic-integrity rules apply.
Exam move
The key to Topic 12 for the exam is scope: liquidation is expressly non-examinable, so concentrate your revision on receivership and voluntary administration. Learn each process by who acts and what its object is — a secured creditor appoints a receiver to realise collateral (with the s 420A sale duty), while directors appoint a voluntary administrator (s 436A) to pursue the s 435A rescue object, with the administrator in control (s 437A) under a moratorium and creditors deciding at the s 439C watershed meeting (often via a DOCA). Anchor everything on the s 95A cash-flow solvency test, which also links back to insolvent trading in Topics 10–11. Practise on fresh distress scenarios by writing visible IRAC answers that identify the correct process, who appoints whom, and the outcome for creditors. When a step won't click, ask Sia to explain it a different way and to set you a fresh insolvency-pathway problem; it teaches the method and checks your reasoning, and it never substitutes for your own graded work.
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