An 11th-hour bid to avoid administration failed when a group of shareholders from New Zealand voted down a plan to restructure the terms of its debt.
David Lacombe and Simon Cathro of Deloitte have been appointed as the investment bank's voluntary administrators.
Under Australia's bankruptcy laws, Babcock & Brown will be allowed to attempt to continue trading in a bid to stay afloat.
A statement from the company said: "[Babcock & Brown] will continue to operate and will proceed with the orderly realization of assets over an approximate two to three-year time horizon to reduce debt."
However, the BBC reports that Mr Lacombe told the Australian Broadcasting Corporation that it is too early to say if the company can avoid a total collapse.
The news agency added that Babcock & Brown has been under pressure for over a year after being unable to handle its "massive" debt levels because of the credit crunch. The company's shares were suspended three months ago having fallen from a peak of A$37 ($24) to 32.5 cents each.