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Deed of Company Arrangement

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?

deed of company arrangement - bankruptcy advisory centre

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?

For a DOCA to be effective, it must feature an extensive framework of the settlement, and outline the fate of all company assets. For instance, it must 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?

At the meeting of creditors, the appointed administrator will propose a DOCA. For the arrangement to be pursued, it must
  • 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?

A DOCA can have a significant effect on the current and future operations of a company. It oversees
  • 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 DOCA will only be terminated under two circumstances
  • 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.

Let our experts guide you through the details.

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