A Deed of Company Arrangement (DOCA) is a formal agreement between a company and its creditors and any other relevant third parties to satisfy company debts.
What is a Deed of Company Arrangement?
A Deed of Company Arrangement (DOCA) is a formal agreement between a company and its creditors and any other relevant third parties to satisfy company debts. A DOCA sets out terms and conditions, warranties and indemnities, the extent and nature of obligations, and the relationships between those who are a party to it.
A DOCA binds all creditors, both unsecured and secured, to the extent of any shortfalls on their securities and releases the company from its debts, at least to the extent provided for within the DOCA’s terms and conditions.
Why choose a DOCA?
A DOCA aims to maximise the chances for a company to continue to exist, or to continue one aspect of its business. Alternatively, a DOCA will provide a better return for creditors than an immediate winding up of a company.
Who can propose a DOCA?
A DOCA proposal is usually put forward by company directors. However, it is not limited to only directors; any third party may propose a DOCA.
What happens if the DOCA is not executed?
When creditors vote for a DOCA, the company must sign the DOCA within 15 business days of the creditors’ meeting, unless the court allows a longer time. If this deadline is not met, the company will automatically go into liquidation, and the voluntary administrator becomes the liquidator.
How long does a DOCA last?
A DOCA lasts for as long as is provided for in its terms, and until all deed obligations are satisfied. The DOCA must state its term and its moratorium period. If the DOCA does not specify an end date, or ending conditions, it is invalid.
Are secured creditors bound by the DOCA?
A secured creditor is only bound by a DOCA if they are a party to the deed, or agree to be bound by it. The court can order to limit the rights of a secured creditor, but this situation is not common. If a secured creditor suffers a shortfall, that debt then falls within the provision of the DOCA.
How does a DOCA affect directors’ guarantees?
Creditors holding guarantees from directors or other parties are bound by the moratorium during the voluntary administration period. Guarantees are enforceable once a DOCA is signed, or the company is wound up. The release of the company’s debt under the terms of the DOCA does not discharge a guarantor’s liability for any shortfall.
Can creditors vary the DOCA after it has been executed?
Yes. Creditors can vary or terminate a DOCA by resolution at a creditors meeting. The administrator must convene the meeting at the request of at least 10 percent of the value of all creditors. Alternatively, the administrator may convene a creditors’ meeting if it is deemed beneficial. Any amendment to the DOCA terms must have the company’s consent. Creditors can apply to the court for the DOCA to be varied or terminated.
What happens to tax losses?
A company proposing a DOCA is likely to have tax losses. These losses are usually preserved; however, they may be lost or reduced if a company fails to pay its creditors 100 cents in the dollar. Directors should seek tax advice before proposing a DOCA to contemplate tax losses being available at the end of the DOCA.
Can a deed administrator pay dividends?
Yes. A deed administrator’s role is to pay a dividend to creditors.
When does a DOCA end?
The DOCA ends when its terms are satisfied, or when a creditor applies to the court to terminate, and is subsequently granted.
What happens if the company does not comply with the DOCA?
If the DOCA terms are not satisfied, it is considered to be in default. Usually, a default notice will be issued by the deed administrator. If the default is not rectified within the period set out in the notice, the agreement 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 agreement, automatically terminating the DOCA
- passing a resolution at a creditors’ meeting
- an application to court and the subsequent granting of an order.
A DOCA termination usually results in the company being placed into liquidation.
How should a company under a DOCA be referred to?
While subject to a DOCA, a company must advertise this status. For example, ABC Pty Ltd should be described as ABC Pty Ltd (Subject to Deed of Company Arrangement) on all public documents.
Disclaimer
The enclosed information is of necessity a brief overview and it is not intended that readers should rely wholly on the information contained herein. No warranty express or implied is given in respect of the information provided and accordingly no responsibility is taken by Worrells or any member of the firm for any loss resulting from any error or omission contained within this fact sheet.
Last Updated: 3.11.2017
