What is a Deed of Company Arrangement?
A Deed of Company Arrangement (DOCA) is a formal framework for a company in voluntary administration to restructure its affairs, repay its debts, and potentially continue operations, offering an alternative to immediate liquidation.
What is the purpose of a Deed of Company Arrangement?
The purpose of a DOCA is to:
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- maximise the chances of a company continuing to operate; and
- provide a better return for a company’s creditors than an immediate liquidation.
A DOCA can be proposed by:
- the voluntary administrator;
- the creditors of the company;
- the director of a company; or
- any third party.
How does a company enter a Deed of Company Arrangement?
If the administrator of a company considers that a DOCA is a viable option they will work closely with the company’s directors to prepare a proposal, which sets out how a company’s affairs will be dealt with.
Once the proposal has been finalised, and made available to the company’s creditors, the administrator of the company will convene a meeting wherein the creditors will vote on whether to accept or reject the proposal.
For a DOCA to be approved it must receive support from a majority of the number of creditors and a majority by value of the total amount owed to creditors.
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If the proposed DOCA received majority support from a majority in number of creditors, but not a majority in value, or a majority in value but not a majority in number, then the Administrator has the deciding vote as to whether the DOCA will be accepted by creditors.
If approved a DOCA is a binding arrangement.
Who is bound by a Deed of Company Arrangement?
A DOCA is binding on:
- The company, its officeholders, and shareholders;
- Secured creditors who voted in favour of the DOCA. In some circumstances, the Court can order secured creditors to be bound by the DOCA even if they voted against it;
- All unsecured creditors, even if they voted against the DOCA;
- Owners of company property;
- Those who lease property to the company; and
- The Deed Administrator(s)
What does a Deed of Company Arrangement cover?
A DOCA typically covers several key aspects, including:
- Appointment of a deed administrator. The DOCA usually outlines the appointment and powers of an administrator who is responsible for overseeing the company’s affairs whilst the DOCA is in effect.
- Moratorium on legal action. To provide the company with breathing space, a DOCA may include a moratorium period that suspends legal actions or debt recovery proceedings against the company.
- Treatment of different creditor groups. A DOCA may distinguish between different classes of creditors.
- Payment arrangements. The DOCA sets out the proposed payment arrangements for the company’s debts.
- Distribution of funds.
- Business restructuring. The DOCA may outline the steps and strategies for the company’s financial and operational restructuring.
- Termination or completion of the DOCA. The DOCA will outline the conditions and events that would lead to its termination or completion.
Any request to vary the DOCA proposal should be made before the DOCA is voted on. However, creditors can resolve to vary the terms of the DOCA even after it has been executed.
Who manages a Deed of Company Arrangement?
The administrator of the company is ordinarily appointed as the deed administrator as they are already familiar with the company’s affairs.
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Their role is to oversee the implementation of the DOCA and ensure it is carried out in accordance with the terms agreed upon by the company and its creditors. The responsibilities of the deed administrator may include:
- Reporting to creditors.
- Distributing funds to creditors.
- Terminating the DOCA.
What happens if a company defaults on the Deed of Company Arrangement?
If a company defaults on the terms of the DOCA, the deed administrator may call a meeting of the creditors to terminate the DOCA and place the company into liquidation.
Benefits of a Deed of Company Arrangement
There are numerous benefits to a DOCA, which varies depending on its terms, including:
- Business continuity.
- Debt repayment. Ensuring a greater, and relatively quick, return for creditors, particularly unsecured creditors.
- Maximisation/Preservation of company assets.
- Flexibility in restructuring.
- Control of the company remaining with the director.
- Certain action against the director cannot be pursued, including insolvent trading claims.
- Insolvent transactions against creditors cannot be pursued, including preferential payments or uncommercial transactions.
Need advice?
At Hunt & Hunt, we have a national insolvency team who can assist you with anything insolvency-related, including Deeds of Company Arrangements.
Our considerable experience across all jurisdictions within Australia can provide you with the comfort to know you are being looked after by the best during this stressful time.
If you require advice on your specific circumstances, please don’t hesitate to get in touch.
Article by Charles Bavin and Matt Gauci, Partners, Jessica Egger, Senior Associate and Lisa Liu, Graduate of Law
Source: https://t-tees.com
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