A Deed of Company Arrangement (a DOCA) is a binding arrangement between a company and its creditors that sets out how the affairs and assets of the company will be dealt with if the company becomes insolvent or enters voluntary administration.
When a company is facing insolvency, a DOCA aims to maximise the chances of the company (or as much the company’s business as possible) continuing and/or provide a better return for creditors than would come from an immediate winding up of the company.
What is the purpose of a DOCA?
Voluntary administrators are appointed to consider whether a company can be saved or should be wound up.
One of the solutions that voluntary administrators propose to creditors is a DOCA – the main purpose of a DOCA is to produce the best possible outcome for all parties, rather than immediately winding the party up/going into liquidation.
What does a DOCA include
A DOCA is tailored to meet the needs of both the creditors and the business. Some examples of what a DOCA cover include:
- Who is to be appointed as deed administrator
- The nature and term of any moratorium
- The extent to which the company will be released from its debts
- How and when the DOCA will terminate
- The order in which any proceeds of the company’s assets are to be distributed
Execution of the DOCA
A DOCA must be executed by a company within 15 business days (unless otherwise granted by a court) of the creditors’ meeting in which the company decided to enter into a DOCA. If the DOCA is not executed within this time frame, the company will automatically go into liquidation, wherein the voluntary administrator will become the liquidator.
Effect of the DOCA
A DOCA binds all unsecured creditors – even those who voted against the proposal. It also binds owners of property, those who lease property to the company and secured creditors, if they voted in favour of the DOCA.
The DOCA is terminated according to the terms it sets out – usually, this is when the company makes a final payment to the creditors. Once the agreement is terminated, the company can continue as a solvent company and move on from the administration. It’s also possible for the court and/or creditors to terminate the DOCA if the company doesn’t abide by its terms.