Explaining a Deed of Company Arrangement (Updated 2021)
A Deed of Company Arrangement (DOCA) is an important agreement used to define specific legal requirements after a company goes into Voluntary Administration. These requirements are binding and are set up between a company and its creditors in order to govern the ongoing affairs of the company. A DOCA attempts to minimise the impact of insolvency by helping businesses avoid liquidation and offer a better return for creditors.
When a company goes into Voluntary Administration, there are three possible outcomes.
- The company is deemed viable and returned to the Directors’ control;
- A Deed of Company Arrangement is designed, stating the company’s intentions going forward, or;
- The company is wound up and put into Liquidation.
What is a Deed of Company Arrangement (DOCA) and its Purpose?
The purpose of a DOCA is to set up a new working relationship between creditors and companies after the company has entered Voluntary Administration. While there are many reasons to serve a DOCA to a business, the general function is to allow creditors to receive any outstanding debts or claims that existed before the company became insolvent.
While individuals and businesses will usually know exactly how much money they are owed, proving specific cases and filing legal documents can involve a complex procedure.
- As a Creditor, you will need to provide the deed administrator the right documents to prove your debt. During this process, you may be required to complete a ‘proof of debt’ claim form. You should always attach copies of all relevant documents used to support your claim, including invoices and receipts.
- As a Business Owner, it’s important to deal with all claims in a professional and responsible manner. The DOCA can release the company from certain debts, and lay down provisions and timelines for other debts to be paid. A DOCA also affects the payment and prioritisation of outstanding employee entitlements, along with any fees and expenses associated with Voluntary and Mandated Administration.
A meeting of creditors is held, those in attendance vote for the DOCA proposal. If approved the company must sign the DOCA within 15 business days or automatically go into liquidation.
Whether you’re a Creditor seeking money owed or a business trying to do the right thing by all stakeholders, it’s important to receive expert financial and legal advice.
What are the Effects of Deed of Company Arrangement
A DOCA has wide-ranging effects on all aspects of the business, including its creditors and stakeholders. The DOCA is designed to set out, document, and bind the new management of the company. Decisions made during this process are dependent on the company and its owner, stakeholders such as directors and secretaries, shareholders, secured creditors who voted for the DOCA, unsecured creditors, anyone who owns company property, and anyone who leased property to the company.
During the time period for which a company is subject to a DOCA, it must include the words ‘subject to a Deed of Company Arrangement’ on all public documents and contracts. Overall, the DOCA binds the company, its officers, and its members to a defined and specific legal arrangement. In addition, the DOCA provides release arrangements and binds creditors to the details of specific timelines and financial agreements. The DOCA can release the company from certain debts, and the Directors of the company can regain control with some restrictions.
Who Monitors the DOCA?
When a DOCA has been executed, all associated arrangements take priority in the management of the company. When this takes place, the Voluntary Administration period basically comes to an end. This extensive process is managed and monitored by a single person – the ‘deed administrator’ of the DOCA who is appointed by the creditors. This person typically, although not always, has previously been the company’s Voluntary Administrator.
The DOCA process can be difficult to manage, with multiple parties involved and complex financial issues needing to be addressed. The Deed Administrator needs to ensure that the company and all other entities comply with all financial commitments and obligations under the new arrangement. At the end of the day, they are the person that creditors will approach if concerns are raised or obligations are not met. In addition, the Deed Administrator needs to report directly to ASIC on behalf of the company and DOCA agreement.
The DOCA will terminate according to the terms defined by the arrangement. Usually, this is when the company makes a final payment to its creditors. Once the DOCA terminates, the period of administration is over and the company can continue as a solvent entity. It is also possible for a court or the creditors to terminate the DOCA if the company fails to abide by its terms.
ASIC provides a detailed flowchart of the role of an administrator in a DOCA.
Deed of Company Arrangement Terms
The terms of the DOCA are designed to identify and denote the specific details of the arrangement. From the appointment of the administrator to the identification of restrictions and termination deadlines, these terms are integral to the ongoing management and impact of the DOCA process.
- Who is appointed the Deed Administrator?
- The identification of property available to pay creditors.
- The nature and term of the moratorium.
- How the company will be released from its debts.
- When the DOCA will terminate and how.
- What restrictions the directors are bound by.
- How and in what order the proceeds of the company’s assets are distributed.
As a separate legal arrangement, this creditors’ trust is primarily used to speed up the company’s exit schedule. During this process, all creditors’ claims are transferred to the newly created trust, with the DOCA generally terminating after the creditors’ claims have been moved. The effects of a DOCA can have a severe impact on both creditors and business owners. In certain cases, a creditors’ trust can be used as a restructuring tool to minimise the risks associated with administration and asset sales.
A creditors’ trust can help to clean up the balance sheet and ensure the successful sale of the company. By enabling the sale of the company and not just its assets, this arrangement can help to favour both the purchaser and the creditors. If managed correctly, the trust can help extract extra value from the sale, which is passed onto creditors in the form of a larger dividend. While a creditors’ trust may potentially deprive creditors of certain statutory protections that exist under the DOCA, it can also offer additional resources and freedoms.
How is DOCA Settled
Creditor claims are paid in a specific order depending on the terms of the deed. Deed proposal payment schedules often function in a similar time frame to liquidation schedules, although this is not always the case. If a different priority has been proposed, it’s important to review the appropriate documents or contact the Deed Administrator. For example, employee entitlements are generally prioritised over those of other unsecured creditors.
If you are a creditor and the Deed Administrator rejects your claim, it’s important to contact the Deed Administrator.
Deed of Company Arrangement Summary
Despite the insecurity and complexity often associated with this process, a DOCA can run like clockwork when all parties work together. As a business owner, several options will be available to you, in order to minimise your losses and to ensure that your best interests are protected. As a creditor, it’s important to work together with your fellow creditors to ensure the best outcome for all.
Despite the complexities involved with entering into a DOCA, this arrangement can help to keep a company solvent and remain active, while also securing a fair deal for creditors. Being informed and knowledgeable with respect to insolvency is extremely important as there are legal ramifications for directors if they fail to fulfil their duties. respect Expert advice is needed to ensure the best possible outcome, with Australian Debt Solvers specialising in Voluntary Administration and DOCA cases.
About Australian Debt Solvers
Australian Debt Solvers powered by Mackay Goodwin is the trusted industry leader for cases that involve Voluntary Administration, Corporate Insolvency, and Liquidation. If your company is currently facing financial problems, we offer expert advice and professional guidance during difficult times. If you need to solve complex financial and legal issues related to a deed of company arrangement, please call our friendly team on 1300 905 107 or complete a Contact Us form to arrange a free consultation.
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