A Deed of Company Arrangement (DOCA) is one of the mechanisms of ending Voluntary Administration. In this process, a proposal is set out between a company and its creditors and any relevant third parties to settle the company’s debts.
A DOCA can be a preferable option to clients/customers as it aims to increase the chances for a company to continue to exist. Similarly, it can provide creditors a better return than that available under the liquidation of the company.
A DOCA is generally proposed by company directors and can take many forms including:
- Contribution of profits from continuation of the company’s business carried out by the directors or Deed administrator;
- Sale of certain assets;
- Voluntary contributions to the company;
- Finance from a lender or bank;
- Payments to creditors in a lump sum or instalments over time.
Following the proposal and vote for a DOCA, the company must sign the deed within 15 business days of the meeting. The DOCA will only bind secured creditors, owners and lessors of property who voted in favour of the proposal. It will however bind all unsecured creditors, even if they did not vote in favour of same.
The duration of a DOCA can vary depending on the terms outlined in the proposal, but once the terms of the DOCA are satisfied, the company will no longer be subject to administration.
If the terms are not satisfied, a default notice will be issued by the deed administrator.
This allows time for the default to be rectified. Should the default continue, then the DOCA will be breached. Enforcement provisions under the DOCA, an application to court or a resolution at a creditors’ meeting may lead to termination of the DOCA. The termination of the DOCA will usually result in the liquidation of the company.
Jonathan McLeod & McLeod and Partners are here to be your partners in financial difficulty. To find out more information about DOCAs and how we can help, please contact Jonathan McLeod on (07) 3004 0800.