REALWorld Law

Real estate finance

Non-insolvency procedures

Are there any schemes or arrangements which can be implemented in relation to a debtor company or business which is in financial difficulties (other than insolvency proceedings)? How do they affect the rights of a lender with security?



A company may be placed in voluntary administration if it is in financial difficulties. A resolution for the company to enter voluntary administration may be made by the directors of the company, a liquidator or by a creditor of the company if that creditor is entitled to enforce a security interest over the whole, or substantially the whole, of the company’s property.

During a voluntary administration, an administrator is appointed to the company for the purpose of attempting a compromise with its creditors or a similar arrangement aimed at saving the company or the business and maximizing the return to creditors.

The administrator investigates the company and is required to submit a report to creditors within a prescribed time frame. The administration ends when creditors either vote to wind up the company, vote to accept a ‘Deed of Company Arrangement’ proposed by the administrator or vote to end the administration process. A ‘Deed of Company Arrangement’ will set out the agreed compromise with creditors and the extent to which the company is relieved from its debts.

The rights of secured creditors are not generally affected by the appointment of an administrator as the secured assets will be outside the reach of the administrator (unless the secured creditor elects to add its security to the pool of assets available to the administrator or elects to become part of the administration process).

However, a secured lender may be prevented from enforcing its security during the administration process. The administration process will usually last 28 business days, but may be extended.