Deed of Company Arrangement

The usual objective of a company in entering a Voluntary Administration is for the company to agree a deal with its creditors – the formal name for that deal is a Deed of Company Arrangement or DOCA.

The aim of the DOCA is to maximise the chances of a company continuing, or to provide a better return for creditors than an immediate winding up of the company, or both.

DOCAs can be designed to suit the situation. The Corporations Act provides no guidance on what a DOCA must include or exclude. So DOCAs can be flexible and can propose whatever is appropriate.

Voting on a DOCA

At the Decision Meeting of Creditors, which is the second meeting in a VA, creditors are asked to vote on the DOCA if one is proposed. In order for the DOCA to be approved, the meeting must pass a resolution – that means that, of those creditors voting, it must be approved by 50% in number and 50% in value.

What happens after the vote for a DOCA?

If creditors vote for a DOCA, the company must sign the deed within 15 business days of the creditors’ meeting. If this doesn’t happen, the company will automatically go into liquidation, with the Voluntary Administrator becoming the liquidator.

The DOCA binds all unsecured creditors. It even binds a creditor that voted against the DOCA. It also binds owners of property, those who lease property to the company and secured creditors, if they voted in favour of the DOCA.

How do creditors get paid in a DOCA

Payment of dividends to creditors under a DOCA are the same procedures for payment of a dividend in a liquidation. The Deed Administrator will call for Proofs of Debt from creditors, admit and reject claims and then pay a dividend. The order in which creditor claims are paid depends on the terms of the DOCA. Often, the DOCA proposal is for creditor claims to be paid in the same priority as in a liquidation. The DOCA must ensure employee entitlements are paid in priority to other unsecured creditors unless eligible employees have agreed to vary their priority.

Who monitors the DOCA

It is the Deed Administrator who ensures that the company carries through the commitments made in the DOCA. The extent of the Deed Administrator’s ongoing role will be set out in the DOCA.

If you would like to learn more about Voluntary Administration, please access our full Voluntary Administration guide created by Insolvency Solutions Group’s specialists explaining this in detail.

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