What Is A Deed Of Company Arrangement?
A Deed of Company Arrangement (DOCA) is a contract that allows companies to avoid liquidation and remain, in some capacity, functional. A DOCA is usually put in place when an organization is facing insolvency (financial difficulties) or has entered voluntary administration. It is employed as a binding agreement between a company and its creditors with the intention of fostering a mutually beneficial solution.
As DOCA experts, we offer professional assistance to companies approaching insolvency so they can avoid the immediate winding-up of their organization.
Who Initiates A DOCA?
If the threat of insolvency is looming over a company it may choose to enter voluntary administration. Voluntary administration is when an independent ‘insolvency practitioner’ assesses the company’s assets and determines the best steps moving forward.
One option the insolvency practitioner could explore is the use of a Deed of Company Arrangement. A DOCA boasts a host of advantages, with the main one being a more favourable outcome for both the organization and the creditors.
What Should A Deed Of Company Arrangement Include?
- The identity of the appointed administrator
- Details of the circumstances leading to the DOCA
- A comprehensive list of all assets available to repay creditors
- The extent to which the organization will be relieved of its debts
- The order in which the company assets will be distributed
- The intention and length of any legal action held against the company
How Is A Deed Of Company Arrangement Implemented?
- Be supported by 50% of creditors
- Fulfil at least 50% of the debt owed
Following approval of the arrangement, the company has 15 business days to sign the arrangement. If they fail to comply with these terms, they will be liquidated and considered insolvent immediately.
Who Oversees A DOCA?
Once the agreement is initiated, the voluntary administration process is brought to a close. From this point forward, the company falls under the jurisdiction of the contract.
The creditors will appoint an individual to be the ‘deed administrator’. Although the creditors can choose anyone to fulfil this role, the voluntary administrator will typically be selected. This is because they are familiar with the operations of the company and can offer an insight that is advantageous to both the creditors and the company.
The main role of the deed administrator is to ensure that the company is complying with the DOCA. They are also an authority that the creditors can approach if they have concerns about the agreement.
The deed administrator is responsible for filing regular reports with the ASIC and must present a detailed list of the company’s receipts and payments every six months.
Who Does A DOCA Affect?
- Unsecured creditors (those who voted against the agreement)
- Owners of company property
- Secured creditors (those who voted in favour of the agreement)
- Those leasing properties to the company
The arrangement can release the business from a number of debts and provides the organization with an alternative plan. By implementing a DOCA, company directors can eventually regain control, but they may be subject to limitations.
When Does A Deed Of Company Arrangement End?
- The company makes its final payment and continues as a completely solvent company, thereby ending the administration period.
- The court or creditors retract the arrangement due to a lack of cooperation from the company, returning the organization to a state of insolvency.
Financial stability is vital for the success of a company and insolvency does pose a threat to your organization, but there are recovery strategies available. Entering a DOCA is just one of the ways to keep your company solvent and operational. Though the process may seem complex, it can provide a better outcome for all parties involved.
As a Trustee in Bankruptcy, Ross Thomson is often required to think outside the box. As well as creative thinking, Ross brings compassion to the table.
For Ross, it’s important to see the people behind the financial problem –not just numbers.
Ross recently helped a bankrupt client who lives in a retirement village with her seriously ill husband.
The unit she & her husband live in is not owned by them, but subject to a 20-year lease.
The money to be repaid by the management was due only at sale, when the client finally left the retirement village.
Sale of the unit was likely to take several years &, if he did sell the couple’s unit, Ross realised he would be effectively evicting them from their home, without resources or family to help them.
Ross decided to contact the retirement village management & put a proposal to them that they prepay some of the moneys they would otherwise pay the client.
The village management considered the proposal & have agreed to prepay some of the moneys otherwise due.
The client is relieved that she will not be evicted & can now concentrate on helping her husband through his health issues.
The moneys paid represented about 75% of what would have been available to creditors if they waited two years.
It is a win for the client and for the creditors.
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