Our ‘Australian Restructuring and Insolvency Guide’, is a practical resource when facing distressed situations, enforcement options and insolvency processes in Australia. It brings together the key legal principles and the commercial considerations that typically arise when matters move from stability to stress.
The guide is presented as a series of focused sections, each designed to stand alone as a practical reference for live matters.
While the series focuses on Australian law, it is also relevant to overseas practitioners and stakeholders dealing with Australian restructures, insolvencies, distressed investments, cross-border recovery, and creditor strategy.
Series roadmap
Across 13 parts, the series covers:
Part 1 – General | Part 8 – Security |
Part 2 – Types of liquidation and restructuring processes – (this article) | Part 9 – Clawback and related-party transactions |
Part 3 – Insolvency tests and filing requirements | Part 10 – Groups of companies |
Part 4 – Directors and officers | Part 11 – International cases |
Part 5 – Matters arising in a liquidation or restructuring | Part 12 – Quick reference |
Part 6 – Creditor remedies | Part 13 – Update and trends |
Part 7 – Creditor involvement and proving claims |
Part 2
Part 2 moves from the framework to the pathways. It covers the core types of liquidation and restructuring processes, including the practical distinctions between liquidation, voluntary administration, receivership, and schemes of arrangement.
Types of liquidation and reorganisation processes
Voluntary liquidations
1. What are the requirements for a debtor commencing a voluntary liquidation case and what are the effects?
Voluntary liquidation cannot be used in certain circumstances without the leave of the Court.
A members’ voluntary liquidation requires a declaration of solvency by the directors stating that the company can pay its debts in full within 12 months. Members’ special resolution for voluntary winding up and appointment of liquidator must be passed within a period of 5 weeks after the making of the declaration or within such further period as Australian Securities and Investment Commission (ASIC) allows, with a copy lodged with the ASIC within seven days.
A solvent winding up can also occur in hostile circumstances where there is a dispute and a shareholder considers that the affairs of the company are being conducted contrary to the interest of the members. The shareholder can apply under section 232 of the Act for court to order the winding up of the company under section 233.
A creditors’ voluntary winding up arises where the company is insolvent. It may occur where a liquidator appointed in a members’ voluntary winding up forms the opinion that the company is in fact insolvent, requiring the process to convert to a creditors’ voluntary winding up. It may also occur where the members pass a special resolution for voluntary winding up without directors’ solvency declaration. In addition, a creditors’ voluntary winding up can follow the end of a voluntary administration, where creditors resolve to wind up the company at the second creditors’ meeting.
In a creditors’ voluntary winding up, the liquidator may adopt a simplified liquidation process as introduced by the Corporations Amendment (Corporate Insolvency Reforms) Act 2020 if the eligibility criteria, such as the requirement that the company’s total liabilities on the day the triggering event occurred do not exceed $1 million, under section 500AA of the Corporations Act 2001 (Cth) are met and procedures in sections 500AAA-500AE are complied with. Directors must give a declaration about the company’s eligibility for the simplified liquidation process as required under section 498.
During liquidation, the liquidator takes control of the company and has extensive statutory powers. Except for secured creditors, creditors’ individual claims are generally stayed and converted to the right to participate in the collective process of liquidation by submitting a proof of debt to the liquidator and receive a dividend, if any. Completion of voluntary liquidation results in deregistration of the company.
Voluntary reorganisations
2. What are the requirements for a debtor commencing a voluntary reorganisation and what are the effects?
Voluntary administration is the principal mechanism for corporate reorganisation under Part 5.3A of the Corporations Act 2001 (Cth). The debtor company can commence voluntary administration by passing board resolutions resolving that the company is insolvent or likely to become insolvent at some future time and that an administrator should be appointed. Upon the commencement of voluntary administration, the administrator takes control of the company’s business and affairs, and an extensive statutory moratorium applies to court proceedings and enforcement actions against the company or its property with limited exceptions. Voluntary administration is not an end in itself and may transit to a Deed of Company Arrangement (DOCA), winding up or end of the process with control returned to the directors.
Separately, the small business restructuring (SBR) process under Part 5.3B may be used by eligible companies with total liabilities under $1 million. It follows a debtor-in-possession model which allows directors to maintain control of the company.
Alternatively, a company may propose a scheme of arrangement under Part 5.1 of the Corporations Act 2001 (Cth), which does not require insolvency as a precondition. Schemes of arrangement, commonly referred to as ‘scheme’, provides a mechanism to bind all creditors, or all creditors in a particular class, to a ‘compromise or arrangement’. Creditors for this purpose are those who would have a provable debt or claim if the company went into liquidation. A scheme does not have to include all creditors, and may leave out a class of creditors who would receive no value in a liquidation. A scheme requires approval from 75% in value and 50% in number of each class of affected creditors and court approval (s 411(4)(a)). The company retains control during the process. Upon successful implementation of the scheme, the company usually returns to its normal state as a going concern with the relevant compromises or arrangements taking effect.
Successful reorganisations
1. How are creditors classified for purposes of a reorganisation plan and how is the plan approved? Can a reorganisation plan release non-debtor parties (guarantors, officers, advisers, lenders, etc) from liability, and, if so, in what circumstances?
In the context of voluntary administration, approval of the Deed of Company Arrangement (DOCA) requires a majority in number and value of creditors present and voting in favour of the DOCA at the second creditors’ meeting. The DOCA binds the company, its officers, members, and unsecured creditors, but secured creditors are bound only if they vote in favour or if they are ordered by the Court. Entering into a DOCA can extinguish claims against officers which would have otherwise been available in a windup.
The High Court in Lehman Brothers Holdings Inc v City of Swan & Ors [2010] HCA 11 at [50] confirmed that creditors are not bound by provisions in a DOCA that involve releases of claims against entities other than the subject company.
In a scheme of arrangement, creditors are grouped into classes based on similarity of legal rights, with only affected creditors needing to be included. To pass, the scheme must be approved by a majority in number and 75% in value of each class, then sanctioned by the court. As per Re One Funds Management [2025] FCA 475 at [27]-[31], schemes of arrangement can include release of creditors’ rights against non-debtor parties.
Involuntary liquidations
- What are the requirements for creditors placing a debtor into involuntary liquidation and what are the effects? Once the proceeding is opened, are there material differences to proceedings opened voluntarily? (Please only highlight if the proceeding once opened materially differs from the proceeding outlined in question 6.)
A creditor may apply to the court to wind up a company in insolvency under section 459P of the Corporations Act 2001 (Cth), usually relying on the presumption of insolvency where the company fails to comply with a statutory demand within 21 days. The debt must exceed $4,000, and the debtor may seek to set aside the demand under section 459G of the Corporations Act 2001 (Cth).
Once a winding-up order is made, the company ceases to trade (except for winding-up purposes), control vests in a liquidator appointed by the court, and directors’ powers are suspended. A statutory stay applies to legal proceedings but does not affect a secured creditor’s right to deal with its security interest. The liquidator’s role is to realise assets and distribute proceeds in the order of the statutory priorities.
There are no material differences between court-ordered and creditors’ voluntary liquidations once commenced.
Involuntary reorganisations
- What are the requirements for creditors commencing an involuntary reorganisation and what are the effects? Once the proceeding is opened, are there any material differences to proceedings opened voluntarily? (Please only highlight if the proceeding once opened materially differs from the proceeding outlined in questions 7 and 8.)
Involuntary reorganisations may occur through: (1) receivership, (2) creditor or liquidator-initiated voluntary administration, or (3) a creditor-initiated scheme of arrangement.
A secured creditor may appoint a receiver under a security agreement once default occurs, and the security becomes enforceable. The receiver acts as agent of the company and must take reasonable care to sell assets for market value or the best price reasonably obtainable. The receiver manages or sells secured assets and distributes proceeds to the secured creditor, with surplus, if any, returned to the company.
A secured creditor with security over all or substantially all of the company’s property may also appoint a voluntary administrator. Upon appointment, a moratorium restricts creditor enforcement actions. Creditors vote at the second creditors’ meeting to proceed with a DOCA, end the administration, or wind up the company.
Schemes of arrangement may also be initiated by creditors under section 411(1) of the Corporations Act 2001 (Cth), but this is rare. If approved by 75% in value and a majority in number of each affected class and sanctioned by the court, the scheme binds all creditors in those classes.
Expedited reorganisations
- Do procedures exist for expedited reorganisations (eg, ‘prepackaged’ reorganisations)?
There is no express legislative framework in Australia for prepackaged reorganisations akin to the United Kingdom’s ‘pre-pack pool’ or the United States Chapter 11 pre-pack. However, under certain circumstances, an administrator or receiver can give effect to those sale transactions that have been negotiated to near completion before their appointment.
Voluntary administration enables distressed companies to pursue an expedited reorganisation without court approval. An administrator has broad powers to manage the company’s affairs and to dispose of property (s 437A), provided that the transaction aligns with the objectives of Part 5.3A of the Corporations Act 2001 (Cth): namely, to maximise the chances of the company continuing in existence, or if that is not possible, to result in a better return for creditors than liquidation . Administrators may execute transactions negotiated pre-appointment, but only after appointment and with regard to their fiduciary duties and investigation obligations. The entire process can be as little as 20 business days after the appointment of the administrator (after the second meeting).
Receivers also hold power to dispose of company property, which can be used to implement a prepackaged reorganisation; but receivers must take reasonable care to sell at market value or best price reasonably obtainable.
Unsuccessful reorganisations
- How is a proposed reorganisation defeated and what is the effect of a reorganisation plan not being approved? What if the debtor fails to perform a plan?
Scheme of arrangement:
A scheme fails if creditors do not approve it by the statutory thresholds (majority in number and 75% in value in each class or if the court declines to approve it. In either case, there is no automatic shift to administration or liquidation – the company remains in its prior state, which may include financial distress.
Deed of company arrangement (DOCA):
A proposed DOCA may be rejected at the second creditors’ meeting if not approved by the majority of voting creditors in value and in number. Creditors may instead vote to end the administration or to wind up the company.
If a DOCA is approved but not executed within 15 business days (or in such period approved by the Court on an application made within those 15 business days), the company will enter into a creditors’ voluntary winding up.
An executed DOCA may be terminated in accordance with circumstances in section 445 of the Corporations Act 2001 (Cth). In particular, if materially false or misleading information or omission is presented to creditors for the purpose of making voting decisions at the second creditors’ meeting, or if the company materially breaches an executed DOCA, or if the DOCA is unfairly prejudicial or contrary to the interests of creditors as a whole, or if there exists some other reason, a creditor, ASIC, the company or any other interested person may apply to the court to terminate it. The creditors are entitled to pass a resolution to terminate the DOCA if there is a breach of it that has not been rectified before the resolution. If terminated, the company will enter into a creditors’ voluntary winding up.
Corporate procedures
- Are there corporate procedures for the dissolution of a corporation? How do such processes contrast with bankruptcy proceedings?
A company is dissolved through deregistration, which may be voluntary or involuntary. Voluntary deregistration requires an application by the company, a director, a member or a liquidator, and is available where six statutory conditions are met, including but not limited to the company not carrying on business, has assets under $1,000, has no outstanding liabilities, and is not a party to any ongoing legal proceedings. The Court can order a deregistration when the winding up has been finalised. ASIC may also initiate involuntary deregistration where, for example, a company has failed to respond to a return of particulars for over 6 months, lodged no documents for 18 months, and ASIC believes the company is not carrying on business.
Once deregistered, the company ceases to exist as a legal person. However, reinstatement is possible by ASIC in certain circumstances or by the Court if, among others, it is satisfied that it is just to do so.
Conclusion of case
- How are liquidation and reorganisation cases formally concluded?
Voluntary administration concludes through one of three outcomes resolved at the second creditors’ meeting:
- entry into a DOCA;
- company be wound up; or
- termination of the administration.
Liquidation concludes with deregistration. Once the company’s affairs are fully wound up, the liquidator must prepare and lodge with ASIC a final account showing how the winding up was conducted and how the company’s property was disposed. ASIC must deregister the company when 3 months has passed from liquidator’s lodgement with ASIC). In a compulsory winding up, the liquidator may apply to the Court for an order releasing the liquidator and that ASIC deregisters the company, if the liquidator has:
- realised all of the company’s property, or as much as can be realised without needlessly prolonging the winding up;
- distributed a final dividend (if any) to creditors;
- adjusted the rights of contributories among themselves; and
- made a final return (if any) to contributories.
The court must be satisfied that no creditor will be adversely affected by the order.
Receivership ends with the receiver’s lodgement of Form 505 within 7 days of ceasing to act when secured assets are realised and proceeds distributed. Control of the company then typically reverts to directors, the voluntary administrator or the liquidator, if one is appointed. Where the company has no further business, it may be deregistered voluntarily or by ASIC.
The Act does not specifically provide for the termination of a scheme. Ordinarily, the scheme document itself will provide for its own termination. Indeed, if a scheme does not so provide, it is likely that the court would not approve the scheme.
Next, Part 3
Part 3 moves from the available processes to the threshold question that often determines when they matter. It covers the Australian test for insolvency, the distinction between cash flow pressure and balance sheet position, and the filing and decision points that can expose directors if they wait too long.
If you are assessing whether a company has crossed the line into insolvency, considering whether to appoint an administrator, or managing the risks around continued trading, we can help you move early and with clarity. Our restructuring and insolvency work is designed to be commercial, evidence-disciplined, and aligned to the outcome that matters, whether that is stabilisation, protection, recovery, or orderly transition.
Further Information
For further information about Australian restructuring and insolvency processes, voluntary administration and liquidation pathways, and creditor enforcement and recovery strategy, please contact the author of this article.
