What is a Deed of Company Arangement?
A deed of company arrangement (DOCA) is a binding arrangement between a company and its creditors governing how the company’s affairs will be dealt with following a Voluntary Administration (VA). It aims to maximise the chances of the company, or as much as possible of its business, continuing, or to provide a better return for creditors than an immediate winding up of the company, or both.
What can be Proposed to Creditors?
Any arrangement can be proposed to creditors. Commonly the proposal will provide for the payment of funds either as a lump sum after the signing of the DOCA, or by periodic payments over some time period. It may also include the sale of assets owned by the company or the payment of part of the profits generated from continued trading or via third party funding.
What are the Effects of a DOCA?
Upon execution of the DOCA:
- the powers of an officer of the company are revived, subject to the terms of the DOCA
- a secured creditor may realise or otherwise deal with its property except where prevented under the DOCA, and then only where the secured creditor has voted in favour of the DOCA
- an owner or lessor of property or secured creditor is only bound by the terms of the DOCA if they voted in favour of the DOCA
- a creditor bound by the DOCA cannot make an application for an order to wind up the company
- a creditor bound by the DOCA cannot begin or proceed with a proceeding or enforcement process in relation to any of the company’s property
- a creditor may proceed to enforce a guarantee provided by a director
- the company is released from a debt only insofar that the DOCA provides for the release and the creditor is bound by the DOCA
When Must the DOCA be Executed?
The company must execute the DOCA within 15 business days of the second creditors’ meeting, unless the Court allows a longer time.
If this doesn’t happen, the company will automatically be placed into liquidation, with the administrator becoming the liquidator.
Can the DOCA be Varied?
A DOCA can be varied by a resolution passed at a meeting of creditors convened for that purpose but only if the variation is not materially different from the proposed variation set out in the notice of meeting.
What is the Role of the Deed Administrator?
The deed administrator (administrator) usually monitors the DOCA to ensure that the provisions are fulfilled and distributes dividends, where available. Control of the company usually reverts to the directors, but the DOCA will provide the deed administrator whatever powers are necessary to fulfill the terms of the DOCA.
How Does a Creditor Get Paid?
All creditors are required to submit a proof of debt, including copies of any relevant invoices or other supporting documents, to the deed administrator. Where funds are available, a dividend will be paid to all creditors whose claims have been agreed and admitted to rank for distribution. The order in which creditor claims are paid depends on the terms of the DOCA.
What Happens if the Comapny Does Not Comply with the DOCA?
If the DOCA terms are not satisfied, it is considered to be in default. The deed administrator would usually issue a default notice, and if the default is not rectified within the period set out in the notice, the DOCA will be breached.
The DOCA may contain enforcement provisions or the deed administrator may have access to guarantees given in support of the DOCA. The DOCA may also be terminated by:
- the provisions of the proposal, automatically terminating the DOCA
- passing a resolution at a creditors’ meeting
- an application to court and the subsequent granting of an order
How Does a DOCA End?
A DOCA will end:
- when the provisions of the DOCA are fulfilled or if the DOCA specifies circumstances in which it is to terminate and those circumstances exist
- if it is terminated under the terms of the DOCA due to a default not being rectified or if the creditors resolve to terminate the DOCA because of default
- if the court orders that the DOCA be terminated because of a default or any other reason the administrator executes a notice of termination