What Happens To Directors When A Company Enters Voluntary Administration?

If your company is under financial pressure, “voluntary administration” can sound like a scary, last-resort option.

But if you’re a director, it can also be a practical way to protect the business (and its stakeholders) while you work out whether the company can be saved, sold, or wound up in an orderly way.

The big question we hear from small business owners is simple: what happens to you as a director when the company goes into voluntary administration in New Zealand?

In this guide, we’ll walk you through what directors can (and can’t) do during voluntary administration, what duties still apply, what personal risks to watch for, and how to approach the process in a way that’s commercially sensible and legally safe. (We’ll focus on what directors need to know in a New Zealand voluntary administration context.)

What Is Voluntary Administration (And When Is It Used)?

Voluntary administration is a formal insolvency process under the Companies Act 1993 where an independent insolvency practitioner (the “administrator”) is appointed to take control of the company’s affairs for a short period.

The goal is usually to:

• keep the business trading while options are assessed;
• pause creditor enforcement action (in many situations); and
• decide the best outcome for creditors and the company (such as a restructure, sale, or liquidation).

For many SMEs, voluntary administration is considered when the company is (or is close to) being unable to pay its debts as they fall due, but there’s still a viable core business, valuable contracts, or assets worth preserving.

It’s different from simply “closing the doors” or informally negotiating with creditors. It’s a regulated process with strict timelines, reporting requirements, and meetings with creditors.

If you want a broader overview of the process itself, it can help to read up on voluntary administration first, then come back to the director-focused issues in this article.

Why Directors Choose Voluntary Administration

From a small business perspective, directors typically use voluntary administration when they want to:

• avoid a “race to the courthouse” where one creditor forces the issue;
• create breathing space to negotiate a restructure or deed;
• preserve goodwill, staff, and customer relationships while options are considered; and/or
• reduce the risk of trading while insolvent (which can create personal exposure for directors).

This is why so many directors look for guidance on voluntary administration and director responsibilities - directors aren’t just trying to “save the company”, they’re also trying to protect themselves while doing the right thing by creditors, staff, and customers.

Do Directors Stay In Control During Voluntary Administration?

In most cases, directors stop being “in control” of the company’s day-to-day decisions once an administrator is appointed.

That doesn’t mean you stop being a director. It means the administrator typically takes over the company’s management and decision-making, and the directors’ powers are effectively restricted.

What The Administrator Usually Controls

During administration, the administrator generally decides things like:

• whether the business continues trading (and on what terms);
• which suppliers are paid and when (including decisions about continuing supply);
• what happens with key contracts (e.g. whether they can be terminated, assigned, or renegotiated);
• whether staff are retained and how wages are paid; and
• what proposal is put to creditors (if any) for the next step.

What Directors Can Still Do

Directors usually still play an important role, especially early on. You may be required to:

• provide records, financials, bank statements, and creditor lists;
• explain what led to financial distress and what options might still exist;
• assist with identifying assets, stock, and business relationships;
• help the administrator understand operational realities (particularly in small businesses where directors hold a lot of “institutional knowledge”).

In a practical sense, think of it like this: the administrator runs the company, but they need directors to cooperate and provide information so they can make informed decisions quickly.

What Directors Should Not Do

A common mistake is directors trying to “keep running the business” as usual. Once an administrator is appointed, directors should be very careful not to:

• enter new contracts on behalf of the company without the administrator’s authority;
• pay some creditors “quietly” (especially if it disadvantages others);
• transfer assets out of the business to “protect them” (this can create serious clawback and misconduct issues);
• make public statements that contradict the administrator’s communications to creditors and staff.

If you’re in any doubt about what you can do, it’s better to ask early than try to fix it later.

What Duties And Personal Risks Still Apply To Directors?

One of the biggest misconceptions is the idea that “the administrator takes over, so directors are off the hook”.

Voluntary administration can reduce certain risks going forward (especially around ongoing trading decisions), but it doesn’t automatically wipe away what happened before the appointment - and directors can still face exposure depending on the circumstances.

Directors’ Duties Don’t Disappear

Directors’ duties under New Zealand law still matter. Even though your powers are limited during administration, directors are still expected to act properly, cooperate, and not undermine the process.

If there are allegations that directors acted improperly before the administration - for example, by failing to act in the company’s best interests, breaching duties, or preferring certain parties - those issues can still be investigated and pursued.

It’s worth understanding the broader idea of directors’ duties and why administrators (and later liquidators) pay close attention to them.

Personal Guarantees And Security Arrangements

For small businesses, the most common personal risk isn’t a complex court claim - it’s personal guarantees.

Even if the company goes into voluntary administration, a director who signed a personal guarantee may still be pursued by:

• landlords (commercial leases frequently involve director guarantees);
• banks and finance providers;
• key suppliers (trade accounts often involve guarantees);
• equipment or vehicle finance companies.

Also, if you signed a contractual indemnity or guarantee document as part of a commercial arrangement, the wording matters a lot. If you’re reviewing exposure and negotiating with creditors, documents like a Deed of Guarantee and Indemnity can become central to what happens next.

Insolvent Trading And Other Claims

Directors can face personal exposure if the company continued to incur debts when it was insolvent (or became insolvent by incurring those debts), or if decisions were made that unreasonably increased losses to creditors. This depends heavily on the timeline, what you knew (or should have known), what steps you took, and what advice you obtained.

Even if voluntary administration is ultimately the right move, it’s often the period before administration that gets scrutinised. This is why getting advice early is so important - especially if you’re still trading but worried about cashflow.

If you want a general picture of the types of exposure that can arise, this guide on personal liability as a company director is a helpful starting point.

What Happens To Company Decisions, Contracts, And Staff?

When a company enters voluntary administration, it’s not just a “legal status change” - it impacts real-world operations quickly. As a director, you’ll often be the one answering questions from staff, customers, and suppliers, so it helps to know what the likely pressure points are.

Bank Accounts And Payments

It’s common for control of bank accounts and payment decisions to shift to the administrator immediately.

If you’re used to being the person who approves payroll, pays suppliers, or transfers GST, you should expect that process to change. The administrator will typically assess what payments are essential to keep the business running and preserve value.

Note: This article is general information and isn’t tax or accounting advice - if you’re unsure about GST, PAYE, superannuation, or reporting obligations in administration, speak to your accountant or Inland Revenue (IRD)/your adviser.

Existing Contracts

Many SMEs rely on a web of agreements - suppliers, distributors, leases, software subscriptions, and customer contracts.

In administration, the administrator will usually review contracts to understand:

• which agreements are profitable or essential to keep trading;
• whether key contracts can be terminated due to insolvency events (depending on the terms and any applicable restrictions);
• whether contracts can be assigned or sold as part of a business sale; and
• whether there are disputes or claims that affect the company’s position.

Directors should avoid making side deals with customers or suppliers during this period without the administrator’s approval, even if it feels like you’re “helping”. The administrator needs consistency and transparency.

Employees And Workplace Issues

For many small businesses, staff are one of the biggest concerns (and one of the biggest costs). During voluntary administration, the administrator will decide whether employees will continue to be employed and whether the business continues trading.

If you’re still hiring or managing staff in any way, it’s crucial your documentation is tidy. Having a clear Employment Contract helps avoid confusion about notice, pay, duties, and termination rights if the business needs to restructure.

In practice, employees will often ask directors what’s going on. You can be supportive and transparent, but be careful not to promise outcomes (like “everyone will keep their job” or “you’ll definitely be paid on Friday”) unless the administrator has confirmed it.

Can Directors Be Removed Or Resign During Voluntary Administration?

This is a common question from directors who feel overwhelmed: “Can I just resign once an administrator is appointed?”

Resignation may be possible, but it’s not always a clean exit - and it doesn’t necessarily remove liability for past conduct anyway.

Resigning As A Director

Directors can generally resign according to the company’s governance documents and Companies Office processes, but timing matters.

Resigning after the company goes into distress can raise questions, including:

• why you resigned when the company needed governance;
• whether you were trying to avoid scrutiny; and
• whether you continued to act as a “shadow director” in practice.

If you’re considering resignation, it’s worth checking what your Company Constitution says (if the company has one) about director appointments, removals, and decision-making.

Being Removed As A Director

Depending on the company structure, shareholders may have the power to remove directors under the constitution or under applicable company law processes.

In voluntary administration, however, the practical focus is usually on stabilising the business and determining the best outcome for creditors - so director changes during this period can be sensitive and should be handled carefully.

Directors’ Access To Information And Indemnities

Another director concern is access to information and protection: “If things go wrong, do I have rights to see records or be indemnified for legal costs?”

This can depend on the company’s governance documents, insurance arrangements (like D&O insurance), and any specific deeds in place. For example, a Deed of Access and Indemnity can be relevant to director access rights and indemnification (subject to legal limits and the company’s financial position).

Even if you already have something in place, it’s worth having it reviewed when insolvency risk arises, because not all protections apply in all circumstances.

What Should Directors Do Before, During, And After Administration?

If you’re a director trying to do the right thing, it helps to think in three phases: before, during, and after voluntary administration.

Before Administration: Get Clear On The Risks And The Timeline

Often, directors wait too long because they hope sales will pick up or a big invoice will land. The reality is that delays can increase personal risk and reduce the options available.

Before appointing an administrator, consider:

• Cashflow reality: are you actually able to pay debts as they fall due?
• Creditor pressure: are you receiving statutory demands, threats of enforcement, or termination notices?
• Personal exposure: what personal guarantees exist, and who can enforce them?
• Restructure options: is the core business viable if debts are restructured?
• Asset position: what assets are secured, leased, or subject to finance?

If your business has lenders or secured parties involved, it also helps to understand how security interests operate and whether they were properly registered, as that can affect priority. In some cases, businesses need to consider steps like registering a security interest when lending or taking security (though the best approach depends on your exact facts).

During Administration: Cooperate And Avoid Side Deals

During voluntary administration, your best “legal strategy” is often to:

• provide documents promptly and accurately;
• keep communications with stakeholders consistent and factual;
• avoid informal arrangements with selected creditors or related parties;
• document what you provide to the administrator and when (so there’s a clear record).

This isn’t just box-ticking. Cooperation helps the administrator assess rescue options faster, which can mean a better outcome for the business and creditors - and less risk of later allegations that directors withheld information.

After Administration: Understand The Outcome And Plan The Next Step

Voluntary administration doesn’t always end the same way. Potential outcomes can include:

• a restructure plan (often via a deed with creditors, such as a Deed of Company Arrangement (DOCA));
• a business or asset sale to a new owner (possibly allowing parts of the business to survive);
• liquidation if there’s no viable way forward.

If the business is sold or restructured, directors should be careful about:

• how IP, contracts, and customer data are transferred;
• what new personal guarantees (if any) are being requested;
• what restraints, warranties, or indemnities are included in sale documentation;
• ongoing obligations to employees and customers.

It’s also a good time to look back and improve governance and risk controls for the future - the hard lessons from administration can often become the foundations of a stronger, more resilient business.

Key Takeaways

• Directors usually lose day-to-day control once an administrator is appointed, but you’re still expected to cooperate, provide records, and act appropriately throughout the process.
• Voluntary administration doesn’t automatically remove director exposure for what happened before the appointment, so decisions leading up to administration may still be reviewed.
• Personal guarantees are a major risk area for SME directors, and they can often be enforced even if the company is in administration.
• Contracts, staff decisions, and payments are typically managed by the administrator, so directors should avoid side deals or making promises without the administrator’s approval.
• Resigning as a director doesn’t erase past liability, and director rights (including access and indemnities) depend on governance documents and arrangements in place.
• Early advice can preserve options and reduce risk - if you think your business is heading toward insolvency, it’s better to get clarity early than wait until options narrow.

If you’d like help understanding your position as a director, your options for voluntary administration, or the legal risks you should be managing, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.