What is a Deed of Company Arrangement in Australia
A Deed of Company Arrangement (also known as a DOCA) is a deal between your company and the people it owes money to. It promises them that you will pay off your debts while keeping your business running. Creditors vote on the plan, and if most of them agree, the DOCA becomes a binding agreement that everyone must follow.
A DOCA gives your company time to fix its money problems. According to Rebound Advisory, of the (more or less) 10,000 Australian businesses entering Voluntary Administration annually, only about 2,000 businesses successfully negotiate a DOCA to pay down creditors. If this is something you’re considering for your company, here’s some advice from MacMillan Law. Keep reading to learn how to do it successfully.
Key Takeaways
- A DOCA helps your company stay open while paying back what it owes.
- Most creditors must agree to the DOCA before it starts.
- Creditors usually can’t take legal action once the DOCA is in place.
- The agreement is watched by an expert who makes sure it’s followed.
What is a DOCA and What Agreements does it include?
A DOCA, or Deed of Company Arrangement, is a legal deal made between your company and its creditors to help you pay off debts. It also helps you to avoid shutting down. It outlines how much you’ll pay, when you’ll pay, and any changes to the way your company runs during the agreement’s effect.
Here’s an overview of what a DOCA includes:
| DOCA Term | Explanation | Common Inclusions |
|---|---|---|
| Purpose | To provide a better return to creditors than immediate liquidation | May allow business to continue trading under new terms |
| Proposed By | Can be proposed by the administrator company directors or creditors | Often developed during voluntary administration |
| Approval Process | Requires approval from a majority in number and value of creditors | Decided at the second creditors meeting |
| Term of the Agreement | Specifies how long the DOCA will remain in effect | Can include staged payments or deadlines |
| Creditor Payments | Details how much and when creditors will be paid | Lump sums instalments or sale of assets |
| Asset Control | Outlines who controls company assets during the DOCA | Usually administered by the deed administrator |
| Release of Claims | May include conditions for releasing the company from some liabilities | Creditors may agree not to pursue further action |
The Main Purpose of a DOCA
The main goal of a DOCA is to save your company from shutting down. You can still run your company while you give yourself time to pay off debts. This gives your company a chance to recover while giving creditors a better return than they’d get if your business was liquidated. It also saves people’s jobs, and manages your debts in a fair way.
When a DOCA is Implemented
A DOCA is put in place after your company goes into voluntary administration. The administrator looks at your business and offers viable options. If creditors vote to accept the DOCA, it must be signed within 15 business days. Once it’s signed, your company must start following the terms from that day onwards.
Approval Requirements of a DOCA
The majority of creditors must agree to the contents of a DOCA for it to be approved. The vote must have the approval of more than 50% of creditors by number, and more than 50% of the total money owed. Once it’s approved, the DOCA becomes legally binding on all unsecured creditors, even those who voted against it.
Who Can Propose a DOCA for Your Company?
Anyone within your organisation can propose a DOCA in Australia, but it’s usually done by the director or the person under voluntary administration. The person must explain how debts will be paid and how the business will move forward in a way where everyone is happy. Creditors then look at the plan and vote on whether to accept it.
Who is Bound to the Stipulations in a DOCA?
A DOCA is legally binding on all creditors that haven’t been paid, even those who didn’t vote or voted against it. The company directors and administrators must also follow the agreement. Secured creditors are only bound to the DOCA if they agree to it or participated in the vote to get it approved.
How Will Creditors Get Paid in a DOCA?
Creditors will get paid in a DOCA according to the plan in the agreement. Payments might happen in instalments, or as a lump sum at some point. Creditors might not get the full amount owed, but they’ll usually get more money than if the company had been liquidated.
Who Monitors the DOCA Agreement?
The DOCA is monitored by the administrator, who is often referred to as the ‘deed administrator’. He or she watches over the DOCA and makes sure the company follows the rules. They will also handle all payments to the creditors. It’s their responsibility to report to those creditors, and they can step in if things go off track.
Can Creditors Still Pursue Legal Action?
No, creditors usually can’t take legal action once the DOCA is put into effect. The agreement stops them from chasing the debts from your organisation. However, if your company breaks the rules or fails to meet the terms, creditors may ask the court to step in.
To make sure a DOCA is successful in saving your company from closure or court action, it’s best to have an attorney as your guide. Speak to MacMillan Law, and we’ll give you an experienced hand in dealing with your DOCA.
FAQs on What is a Deed of Company Arrangement?
Does a DOCA stop personal guarantees?
No, a DOCA doesn’t cancel personal guarantees. If you’re a director or someone who signed a personal guarantee, creditors can still come after you personally, even if the company is under a DOCA. The agreement only covers the company’s debts, not your personal promises to pay.
Are directors still in control after a DOCA is put in place?
Yes, directors usually take back control of the company once the DOCA starts. However, they must follow the rules in the agreement. The deed administrator still watches over the plan and steps in if things aren’t done properly.
Can the court terminate a Deed of Company Arrangement?
Yes, the court can end a DOCA if it’s unfair, not followed, or not in the best interests of the creditors. A creditor, the company, or ASIC can ask the court to step in. If the court cancels the DOCA, the company may go into liquidation.
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