Why 80% of Voluntary Administrations Return Nothing to Unsecured Creditors

The statistic is well known in insolvency circles, but it still manages to shock people outside them: more than 80% of companies that enter Voluntary Administration in Australia return absolutely nothing to their unsecured creditors. Not five cents in the dollar. Not two cents. Nothing.

For a process that was designed to rescue companies and maximise returns for all stakeholders, that is a remarkable failure rate. And yet VA remains the default recommendation for many advisors when a company hits financial distress. "You should probably put it into VA" is the corporate equivalent of "have you tried turning it off and on again" - except that turning it off, in this context, is usually permanent.

This article examines why the outcomes are so consistently poor, what the mechanics are that drive those outcomes, and what the alternatives look like when a business still has a viable core worth preserving.

The numbers behind the headline

The 80% figure is not a rough estimate. ASIC's published statistics on external administration outcomes have consistently shown that the vast majority of creditors' voluntary liquidations and DOCAs deliver nil returns to unsecured creditors. In many reporting periods, the figure exceeds 85%.

To be clear about what this means in practice: when a company enters VA and the process runs its course - whether through a Deed of Company Arrangement (DOCA) or a transition to liquidation - the trade suppliers, landlords, and other unsecured creditors who are owed money overwhelmingly receive nothing. The secured lenders recover what the security allows. The employees receive their entitlements (often through the Fair Entitlements Guarantee). The administrator and their lawyers are paid their professional fees. And the unsecured creditors are left with a report explaining why there is nothing left for them.

The question worth asking is not simply "why does this happen?" but rather "is this outcome inevitable, or is it a consequence of how and when the process is initiated?" The answer, in our experience, is overwhelmingly the latter.

The anatomy of a zero return

To understand why most VAs produce nothing for unsecured creditors, you need to understand what happens to a business from the moment an administrator is appointed. There are several forces at work, and they compound each other.

1. The business is already critically wounded before the administrator arrives

The most common reason VAs fail to produce a return is the simplest one: the company was left too long before anyone acted. By the time an administrator is appointed, the business has typically been deteriorating for months or years. Cash reserves are exhausted. Key staff have left. Supplier relationships are strained or broken. The ATO debt has been compounding with General Interest Charge. The bank is out of patience.

VA is often the last act of a director who has run out of options, not the first act of a director who has identified a problem early. By the time the administrator walks in, there is frequently nothing left to work with. The assets have been pledged, the debtors are slow or doubtful, the inventory is obsolete, and the goodwill - which was once the most valuable asset - has evaporated.

This is not a criticism of administrators. It is a criticism of the decision-making that precedes the appointment. When a business enters formal insolvency at the point of maximum distress rather than at the point of first warning signs, the outcome is largely predetermined.

2. The appointment itself destroys value

This is the point that is least well understood by directors and their advisors, and it is arguably the most important.

The appointment of a voluntary administrator is a public event. It is lodged with ASIC. It is notified to creditors. In many industries, it is reported in the press. And the moment it becomes known, the commercial consequences are immediate and severe.

The impact differs fundamentally depending on whether the business operates in a B2B or B2C environment.

For B2B businesses, the damage is catastrophic and often irreversible. A company's business customers are not casual buyers. They are procurement managers, supply chain directors, and operations teams who depend on continuity of supply. When they learn that a supplier has entered VA, their immediate reaction is not sympathy - it is self-preservation. They are thinking about their own supply chain risk: will this supplier be able to fulfil my orders? Will warranty obligations be honoured? Will I be left scrambling for an alternative at short notice?

The answer, in practice, is that B2B customers begin switching suppliers within days of the announcement. They have to. Their own businesses depend on it. A manufacturing company that relies on a component supplier cannot afford to wait and see whether the DOCA gets approved in eight weeks. They need to secure an alternative source now, because the cost of a supply disruption to their own operations dwarfs whatever loyalty they feel toward the distressed supplier.

For B2C businesses, the dynamic is entirely different. Retail customers are largely indifferent to a company's financial status. In fact, the announcement of an administration often attracts customers rather than repelling them, because it signals clearance sales and discounting. A furniture retailer in VA will see foot traffic increase as bargain hunters arrive. A restaurant in VA will still serve meals to customers who neither know nor care about the company's balance sheet.

This distinction matters enormously when assessing whether VA is appropriate. For a B2B business with concentrated customer relationships, the act of entering VA can destroy the very thing that makes the business worth saving. For a B2C business with dispersed, transactional customer relationships, the commercial impact of the appointment is far more contained.

Yet the decision to appoint an administrator rarely accounts for this distinction. The advice is too often generic: "the company is insolvent, it needs to go into VA." The question of what VA will do to the revenue line - and therefore to the enterprise value available for creditors - is frequently not asked until it is too late.

3. The cost of the process consumes what remains

Voluntary Administration is not cheap. An administrator's fees, together with the legal costs that inevitably accompany the process, can easily reach six figures for even a modest-sized company. For larger or more complex administrations, fees can run into the hundreds of thousands or even millions.

These costs are paid in priority to unsecured creditors. The administrator's remuneration is approved by creditors (or, failing that, by the court), and it ranks ahead of unsecured claims in the priority waterfall. So too do the costs of any legal proceedings, asset realisations, employee entitlements, and other administration expenses.

4. The priority waterfall leaves unsecured creditors last

Even when a VA does generate meaningful realisations, the distribution priority under the Corporations Act means unsecured creditors are at the back of a long queue. First come the costs and expenses of the administration itself. Second, secured creditors recover from the assets subject to their security. Third, employee entitlements rank ahead of unsecured creditors under the statutory priority regime. Fourth, and only fourth, unsecured creditors share in whatever is left.

In practice, what is left is usually nothing. The arithmetic simply does not work: once you subtract administration costs, secured creditor claims, and employee entitlements from total realisations, the residual is rarely positive.

5. DOCAs are often liquidation by another name

The DOCA mechanism was intended to be the rescue pathway within the VA framework - a binding agreement between the company and its creditors that restructures the company's debts and allows it to continue trading. In theory, a well-structured DOCA should produce better outcomes than liquidation, because it preserves the going concern value of the business.

In practice, many DOCAs are structured as little more than a managed wind-down. The business has already lost its key customers, staff, and supplier relationships by the time the DOCA is proposed. There are genuine rescue DOCAs that work - they tend to involve businesses with strong underlying assets, resilient customer bases, and a committed funding source for the deed. But these are the exception, not the rule.

The real question: was VA the right answer in the first place?

This is where the analysis becomes uncomfortable for the advisory profession. In many of the cases that produce nil returns, the question is not "why did the VA fail?" but "why was VA recommended at all?"

There is a gravitational pull toward formal insolvency in the Australian advisory market. When a company is in financial distress, the conventional pathway runs through a small number of steps: the director consults their accountant; the accountant recognises the situation is beyond their expertise and refers the director to an insolvency practitioner; the insolvency practitioner assesses the company's solvency position; and, finding it insolvent or likely to become so, recommends VA.

Each step in this chain is professionally reasonable. The problem is that the chain is too short. It skips the question that should come before the insolvency assessment: can this situation be resolved without a formal process?

The informal alternative

An informal creditor compromise - a negotiated arrangement with creditors outside any statutory framework - will often produce a materially better outcome than VA. Not always. But more often than the default pathway acknowledges.

The advantages are significant. Privacy: an informal process is not lodged with ASIC, is not published, and customers, suppliers, and employees do not learn about it unless the company chooses to tell them. For a B2B business, this alone can be the difference between survival and collapse. Cost: advisory fees exist, but they are a fraction of what a formal process demands. Speed: a well-managed informal compromise can be negotiated and implemented in weeks, compared to the months a VA typically takes. Flexibility: the outcome is bespoke, not constrained by the rigid framework of Part 5.3A. And perhaps most importantly, relationship preservation: a supplier who is approached directly, shown a credible turnaround plan, and offered a realistic payment schedule is far more likely to continue supplying than a supplier who receives a circular from an administrator informing them they are now an unsecured creditor in a formal process.

When VA is the right answer

None of this is to suggest that VA is never appropriate. There are circumstances where a formal process is the right - or the only - answer:

• When the company is genuinely insolvent and the directors need protection from insolvent trading liability.
• When there is a genuine prospect of a funded DOCA that will deliver a better outcome than liquidation.
• When a Non-Lockdown DPN has been issued and the 21-day clock is running - appointing an administrator within the window remits the director's personal liability.
• When creditor dynamics are too fractious for informal resolution.
• When the business is clearly not viable and the priority is an orderly wind-down.

The point is not that VA should be avoided. The point is that it should not be the default. It should be the answer after a genuine assessment of whether an informal resolution could achieve a better outcome - not the answer because it is the answer the advisory profession is most familiar with.

The 80% figure is a systemic indictment

When eight out of ten formal administrations return nothing to the creditors they were designed to protect, something is structurally wrong. The causes are identifiable and, in many cases, avoidable: companies enter formal processes too late; the act of entering VA destroys the remaining commercial value, particularly in B2B businesses; the cost of the formal process consumes what little remains; and the advisory pathway defaults to formal insolvency when informal alternatives could produce better outcomes for all stakeholders.

The directors who navigate financial distress most successfully are not the ones who find the best administrator. They are the ones who act early, engage their creditors proactively, and explore every informal option before resorting to a formal process. They are the ones who understand that preserving enterprise value - keeping customers, retaining staff, maintaining supplier relationships - is more important than any statutory framework.

What directors and their advisors should do differently

If there is a single takeaway from this analysis, it is this: the time to act is before VA becomes necessary, not after.

Directors who are experiencing financial stress - declining revenue, margin compression, growing ATO liabilities, lender pressure - should seek specialist restructuring advice early. Not when the company is insolvent. Not when the DPN arrives. Not when the bank appoints a receiver. Early. While the business still has customers, still has staff, still has relationships worth preserving.

The conversation should start with the question: "Is this business viable at its core?" If the answer is yes - or even "yes, with some changes" - then the next question should be: "How do we restructure the balance sheet and the cost base without destroying the enterprise value that makes the business worth saving?" That question almost always points away from VA as the first option and toward an informal, negotiated resolution that preserves the business as a going concern.

The 80% statistic is not inevitable. It is a consequence of decisions made too late, advice given too narrowly, and a default assumption that formal insolvency is the only pathway through financial distress. It does not have to be.

This article is general information only and does not constitute legal or financial advice. © 2026 Rebound Advisory. All rights reserved.