Deed Of Company Arrangement

A Deed of Company Arrangement (“DOCA”) can only be effectuated following a voluntary administration.  If a proposal for a DOCA is accepted at the second meeting of creditors, it will result in the successful financial reorganisation of the company.  The DOCA must be executed within 15 business days of the second meeting of creditors.  The DOCA binds all creditors and members, even those creditors that did not vote in favour of it.  Secured creditors and lessors will only be bound by the DOCA, if they vote in favour of it.

 

A DOCA is nothing more than a deal between the company and its creditors.  There are many types of DOCA.  Some DOCAs provide for some or all of the following:

• the continuation of the company’s business with contributions to a deed fund from profits from trading;
• contributions to a deed fund by the directors or their associates;
• a moratorium on creditors’ claims for the duration of the DOCA;
• the sale of part or all of the company’s business, with the proceeds being paid to the deed fund;
• the subordination and postponing of certain creditors’ claims, usually creditors associated with the directors; and,
• the restructuring of the company’s debts whereby ordinary unsecured creditors receive a dividend of less than what is owed.

If the company, or another party, defaults on a key term of the DOCA, then a meeting of creditors can be convened by the Deed Administrator to vary the DOCA or terminate the DOCA and put the company into liquidation.

 

The advantages of a DOCA include:

• a high degree of flexibility.  This enables a DOCA to be tailored to an individual company’s circumstances;
• it may provide for the successful restoration of a company to solvency;
• may enable the company’s business to continue from which suppliers will benefit;
• it may provide a greater return to creditors than if the company was wound up; and,
• it may provide for a dividend to be paid to creditors relatively quickly.