Restructuring & Insolvency
What is a Deed of Company Arrangement (DOCA)?
A Deed of Company Arrangement (DOCA) is an external administration process that follows voluntary administration.
A DOCA can involve a restructure proposal to keep the business going, an injection of funds to be paid to creditors, a combination of the two, or any other proposal to creditors. The key is that it offers creditors a better return than what they could expect if the company was placed in liquidation.
Accepting a DOCA proposal is one of the options that creditors can choose in relation to the company’s future at the second creditors meeting. If the DOCA is chosen that means that the company does not go into liquidation at that time. This means that recovery actions available to a liquidator, such as insolvent trading and voidable transactions (unfair preferences and uncommercial transactions), are not pursued.
A DOCA can be proposed by the directors or a third party. The voluntary administrator can provide general guidance with the DOCA’s terms, but she cannot advise on it. For that reason, it’s not unusual for the DOCA proposer (called ‘proponent’) to engage their own advisor. Avior frequently takes on this role.
How complete must a draft DOCA be?
A draft DOCA is usually submitted to the administrator in a summary format. Terms of the DOCA, its objectives, method of implementation, and the effect on creditors are described in the report to creditors circulated by the administrator before the 2nd creditors meeting.
Creditors can propose changes to the DOCA proposal at the 2nd creditors meeting. Where creditors vote in favour of such changes, those amendments must be incorporated into the DOCA. However, any such changes may make the DOCA unfeasible and it may not be able to be executed.
What happens if creditors vote for a DOCA?
If creditors vote in favour of the DOCA, the proposal is converted to a legal agreement that must be signed within 15 business days after the 2nd creditors meeting.
If that does not happen the company is placed automatically in liquidation.
If the DOCA is accepted, the voluntary administrator’s role changes to ‘deed administrator’ and he is responsible for administering the terms of the DOCA and paying the planned distribution(s) to creditors.
Certain rules must be followed in the DOCA agreement. For example, it cannot change the ranking of employee entitlement claims as compared to liquidation.
When does a DOCA end?
A DOCA ends when its terms have been carried out and the planned distributions to creditors have occurred. At that time the liabilities that existed on the company’s balance sheet when the voluntary administration began are wiped clean and no claims relating to the period before the voluntary administration date can be brought in the future.
A DOCA can also terminate if key parts of the agreement are not complied with. In that case, the deed administrator must inform creditors of the breach. He may also convene a creditors meeting in order to place the company in liquidation.
DOCA compared to Safe Harbour
Both approaches are ways of designing and implementing a restructure proposal. The key difference is that a DOCA is a ‘public’ restructuring tool. Documents with the company’s name must include the words ‘(Subject to Deed of Company Arrangement)’. Also, a search of the company on ASIC’s databases will indicate that the company is subject to external administration. A further key difference is that the company is controlled by the deed administrator during the DOCA period.
Safe harbour, on the other hand, can be a confidential process. There is not legal requirement to inform outside parties of the restructure plan. directors also maintain control.
Would you like to give your business a second chance?
Download here our step by step guide into just how powerful this unique tool can be. Inside we cover the following topics:
- What is a Deed of Company Arrangement (DOCA)?
- How is a DOCA achieved?
- How much does a DOCA cost & how can it be funded?
- How long does a DOCA take?
- Are there any restrictions on what a DOCA can achieve?
If your business is experiencing financial difficulty, contact us to arrange a free, no-obligation discussion to give you clarity on your position and options available.