Dick Smith appoints an external administrator


This week, Dick Smith went into voluntary administration which raises questions about what will now happen to the consumers and creditor’s of Dick Smith.

What is voluntary administration?

Voluntary administration is a process whereby an “external administrator” is voluntarily appointed by a company to manage its affairs, in the hope that the company will ultimately recover from whatever financial difficulty is being experienced and continue to trade.

The idea behind appointing a voluntary administrator is to give the company “breathing space”. The process usually takes a few months and the company continues to trade during the period of voluntary administration.

While a company is under the control of an external administrator, some of the following restrictions apply:

  • unsecured creditors can’t commence, progress or enforce their claims against the company without the administrator’s consent or obtaining permission of the court;
  • property which is owned, used or occupied by the company, or persons who lease such property to the company cannot recover their property, other than perishable property;
  • secured creditors are unable to enforce their charge over company property, except in limited circumstances; and
  • a creditor holding a personal guarantee from the company’s director or other person is unable to act under the personal guarantee without first obtaining permission from the court to do so.

What are the options after external administration?

Once the company has been given some “breathing space” so to speak, the administrator issues a report to the creditors of the company advising them as to the financial state of the company. A voting process is then undertaken so that the creditors can in effect determine the future of the company based on the recommendations of the external administrator.

Typically, one of the following courses of action will be recommended and ultimately come to fruition:

  • the company will go into liquidation;
  • a compromise will be reached in relation to the debts in order to allow the company to continue in existence (this is referred to as a “Deed of Company Arrangement”);
  • the company will be returned to the control of the directors.

If a creditor is an employee or shareholder, the administrator is required to prioritise recovering the debt owed to that creditor before compensating unsecured creditors.

Unsecured creditors, including anyone who has goods under layby, a credit note or gift card to redeem must register their debts with the external administrator who will determine whether or not payment, partial payment or a refund can be made after the secured creditors have been compensated.

If you have any queries in relation to the voluntary administration process, or you are considering placing your company under voluntary administration, please contact me.


Tagged in: , , , , , , , , , , , , , , , , , , , , , ,

You may also be interested in:

6 Things You Can Expect When Declaring Bankruptcy

Declaring bankruptcy should be your last resort when you are faced with financial difficulties, whether as an individual or as a business owner. It is not exactly a “Get Out of Jail Free” card, as it comes with many adverse consequences, which may significantly impact your financial standing over a considerable period. So what consequences continue reading

How do you determine if a company is insolvent?

The answer to the question “How do you determine if a company is insolvent?” is important because there are serious consequences for a director if debts are incurred after the company has become insolvent, including civil penalties, compensation proceedings and criminal charges. However, it is often difficult to know when a company has crossed the continue reading

What to do if you receive an ATO Director Penalty Notice

Did you know that company directors may potentially become personally liable for unremitted Pay As You Go (PAYG) deductions and Superannuation Guarantee Charges (SGCs)? The Australian Taxation Office (ATO) has significant powers to recover a company’s unpaid liabilities personally through its directors and may issue a Director Penalty Notice (DPN). This article focuses on the continue reading

Liability Limited by a scheme approved under professional standards legislation | Website by VA