Deed of Company Arrangement
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.
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:
- It has the potential to bind all creditors of a company to the terms of the DOCA;
- It offers the company an avenue to be released from its debts at the date of appointment of an Administrator provided that the terms of the DOCA are complied with;
- Control of the company will ordinarily revert back to the director in either a full or limited capacity;
- A moratorium on creditor claims for the duration of the DOCA is imposed, meaning a creditor cannot commence or continue legal proceedings against the company without leave of the Court;
- A degree of flexibility. A DOCA can be tailored to a company's specific circumstance;
- It may enable the successful restoration of a company back to solvency;
- It may enable the company's business to continue from which suppliers and employees will benefit;
- It may provide a greater return to creditors than if the company was placed into liquidation; and
- It may provide for a dividend to be paid to creditors relatively quickly.
Should creditors elect or vote to accept a DOCA, the DOCA will ordinarily be executed within 15 business days from the date of the resolution being passed by creditors or 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.
Should you have any queries concerning this form of administration please do not hesitate to contact our office for further information.