From Corner Shop to Large Multinational: Should Voluntary Administration Remain a One-Size-Fits-All Procedure? Do We Need a Fast Track System for Small Business Rescues?

Abstract

Voluntary administration provides a formal corporate rescue mechanism under both Australia’s and New Zealand’s corporate insolvency laws. It was designed to provide a fast and efficient means for promoting corporate rescue. The goal of saving businesses was specifically included in the statutory objects. The voluntary administration process is a 'one size fits all' model that has been applied to all business types since its inception, from corner shops to large multinationals but it seems to be decreasing in popularity in Australia and has never really taken off in New Zealand. Liquidation and receiverships are far more popular than voluntary administrations. In Australia, fewer than 1 in 5 insolvencies go through voluntary administration and in New Zealand the number is far fewer. This essay argues that voluntary administration has become too expensive for small and medium size businesses and that the one-size fits all model no longer achieves the stated statutory purpose. The essay discusses options for a more streamlined system for SME businesses. Given the much longer time period since its introduction (over 20 years), the paper uses Australia as a case study and makes references throughout to comparable provisions in New Zealand. The criticism of the voluntary administration procedure, and the options for law reform, apply equally to both jurisdictions.