“I need more time!” Options for extending a voluntary administration

Voluntary administrations are prescribed to be a temporary and relatively brief affair. However, there are options available to administrators to extend that timeframe in some circumstances.

When a company enters voluntary administration, the Corporations Act 2001 requires an administrator to convene a meeting of the company’s creditors within 5 business days before, or 5 business days after the end of the “convening period”, at which time creditors are expected to vote on the future of the company.

Ordinarily, the “convening period” is 20 business days after the commencement of the voluntary administration, with modest additional time granted around the Christmas and Easter holiday periods.

Therefore, an administrator has very limited time – just over a month – to investigate the company’s financial position, liaise with creditors and other interested parties, and then determine whether the company must enter liquidation or has other avenues that would allow it to continue trading (such as a deed of company arrangement).

If an administrator requires additional time, they can extend that timeframe by:

1. applying to the court to extend the convening period; or
2. convening and then adjourning a meeting of the company’s creditors.

How to extend the convening period

Applications to extend the convening period are “by far the most common applications made to the court by administrators” (Re Hughes [2019] WASC 139). Courts have provided plenty of commentary on the relevant considerations and the circumstances that will justify granting an extension of time.

In an application for an extension, the Court is expected to strike an appropriate balance between:

1. On the one hand, the expectation (as set out in the Corporations Act 2001) that a voluntary administration should proceed quickly; and
2. On the other hand, the expectation that an administration should proceed in such a way to achieve a better return for company creditors and members compared to an immediate winding up.

There is no predisposition against granting an extension of time, however, extensions of time are not granted as a matter of course. To obtain an extension, the administrator must adduce sufficient evidence to enable the court to carry out the above mentioned balancing exercise and explain with some particularity the reasons that make the extension necessary.

In addition to having good reasons to justify the extension, the views of interested parties (including creditors) can also be a relevant consideration. A prudent administrator should endeavour to give notice to interested parties prior to applying for an extension.

There is a presumptive expectation that any extension of the convening period will be brief. However, over time, courts have come to recognise that significant extra time may be required and should be allowed in complex administrations.

Adjournment of creditors’ meeting

Administrators may adjourn a creditors’ meeting for up to 45 business days under the Insolvency Practice Rules (Corporations) 2016. An adjournment can enable a brief extension of the administration without the costs of a court application.

If an administrator adjourns the meeting, it is possible to then apply to the Court to extend the period of adjournment beyond 45 business days. The principles relevant to that extension are similar to the principles relevant to extending the convening period.

“Holding” deed of company arrangement?

As an alternative to extending the voluntary administration, an administrator may, with the support of creditors, enter a deed of company arrangement that effectively maintains the status quo that exists during the administration (including, importantly, a moratorium on creditors’ claims) while further investigations occur. Deeds of company arrangement of that nature have previously been described as a “holding DOCA”, but courts have cautioned that term is best avoided.

While a deed of company arrangement may, in certain circumstances, present an alternative to an application to extend the voluntary administration, care must be taken to ensure the deed of company arrangement complies with the requirements of the Corporations Act 2001, and is not merely a scheme to sidestep the rules that otherwise seek to protect creditors by limiting the duration of voluntary administrations. See the High Court case of Mighty River International Ltd v Hughes (2018) 265 CLR 480; [2018] HCA 38 in that regard.

Key take aways

Although voluntary administrations are required to progress promptly, administrators have several tools at their disposal if they need an extension of time. Where an administrator is faced with a challenging or complex appointment, they should consider the possibility of an extension and seek advice to determine what course of action will achieve the best possible outcome for the company under administration and its creditors.

Contact Macpherson Kelley’s Litigation and Insolvency team for advice

If you are considering an extension, Macpherson Kelley’s Litigation team can provide practical advice on the best route to take. Contact our Brisbane Litigation and Insolvency lawyers today.

The information contained in this article is general in nature and cannot be relied on as legal advice nor does it create an engagement. Please contact one of our lawyers listed above for advice about your specific situation.