A Deed of Company Arrangement (DOCA) is an alternative form of administration which enables a company to restructure itself in order to facilitate its ongoing corporate existence and trading ability, and deal with the company’s creditors’ existing claims under a formal arrangement. It is an opportunity for the company to trade through an unexpected hurdle such as short-term cash flow problems, legal issues and actions.
This agreement represents an alternative form of administration, enabling the restructuring of a company to facilitate its ongoing trading ability and corporate existence. A DOCA also ensures a company can manage their creditors’ existing claims through a formal agreement.
A DOCA is an extension to a Voluntary Administration and is one of three alternative options available in determining the future of a company which creditors are asked to consider and decide on at a meeting convened under Section 439A of the Corporations Act 2001, which is commonly referred to as the “second meeting” or “proposal meeting”.
Whether a DOCA is an option available to creditors is contingent upon the director(s) putting forward a proposal setting out the terms and conditions of the proposed DOCA. The submission of the proposal is usually tendered well prior to the second meeting in order to enable the presiding Administrator to assess the merits of the proposal against liquidating the company, which is an option for creditors to vote on at the second meeting. The Administrator will form his opinion on the proposal and other options which he will disclose in a comprehensive report to be distributed to creditors of the company prior to the second meeting.
The potential advantages of a DOCA are as follows:
Should creditors elect or vote to accept a DOCA, the DOCA will ordinarily be executed within 15 business days after the end of the meeting of creditors unless extended by the Court. Should the DOCA requirements be complied with the company and its director(s) will avoid liquidation.
Any parties considering a DOCA should be mindful that common litigation actions usually afforded to creditors under a liquidation scenario such as pursuing insolvent trading, uncommercial transactions, unfair preferences and other voidable dispositions are not pursuable under a DOCA scenario.
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