A Deed of Company Arrangement (DOCA) is a legally binding agreement entered into by a financially distressed company, its creditors, and a Deed Administrator. It is a part of the voluntary administration process under Australian corporate law, specifically governed by Part 5.3A of the Corporations Act 2001 (Cth). The purpose of a DOCA is to facilitate the restructuring or reorganization of a company in financial difficulty, with the aim of maximizing the chances of its survival and providing a better return to creditors than they would receive through liquidation.
The DOCA outlines the terms and conditions under which the company will operate during the restructuring process, the contributions it will make to repay its debts, and any proposed changes to its management or operations. The Deed Administrator, who is usually the same person as the voluntary administrator, oversees the implementation of the DOCA and ensures that the company complies with its terms.
Creditors vote on whether to accept the proposed DOCA or reject it in favor of an alternative outcome, such as liquidation. If the DOCA is approved by a majority of creditors, it becomes binding on the company, its directors, shareholders, and unsecured creditors. If the company successfully completes the terms of the DOCA, it can continue trading and emerge from the voluntary administration process.
What Should a DOCA Cover?
In order to be effective, a DOCA will need to comprehensively cover how the affairs and assets of the company will be dealt with. For example, a DOCA must include:
- who is to be appointed the administrator of the DOCA;
- the details of all property that is available to pay creditors;
- the nature and term of any moratorium (moratoriums prevent creditors from taking certain activities for a set length of time, such as commencing legal proceedings or taking possession of company property);
- how and when the DOCA will terminate;
- the extent to which the company will be released from its debts;
- details of the claims which led to the DOCA; and
- the order in which any proceeds of the company’s assets are to be distributed.
Who Manages the DOCA?
When the company executes a DOCA, the voluntary administration period of the company effectively ends. Instead, the DOCA will govern the company.
The creditors will appoint a person as the ‘deed administrator’ of the DOCA. The deed administrator must oversee the company’s management under the DOCA. Although the creditors may appoint another person to be the deed administrator, the deed administrator is typically the person who was
the company’s voluntary administrator. This is because they are already familiar with the company, and it is therefore usually preferable for both the company and creditors that they continue this role.
The deed administrator plays the primary role of ensuring the company complies with its commitments and obligations under the DOCA (and that any others who have obligations under the DOCA do the same). They are also the person who creditors or others will approach if they are concerned that the company is failing certain obligations.
The deed administrator has reporting obligations to ASIC on behalf of the company. For example, they must lodge a detailed list of the company’s receipts and payments with ASIC every six months.
What Is the Effect of a DOCA?
The DOCA, in setting out the management affairs of the company, is binding on:
- the company, its officeholders (i.e. its directors and company secretaries) and shareholders;
- all unsecured creditors (even those who voted against the proposal);
- owners of company property;
- those who leased property to the company; and
- secured creditors who voted in favour of the DOCA.
While a company is subject to a DOCA, it must include the words ‘subject to a Deed of Company Arrangement’ on:
- any public documents; and
- other documents, such as contracts, that the company enters into.
The DOCA can release the company from certain debts where the DOCA provides for that release. The directors of the company can regain control of the company, although they may face some restrictions.
The DOCA will terminate according to the terms of the DOCA. Usually, this is when the company makes a final payment to its creditors under the terms of the DOCA. Once the DOCA terminates, the company can continue as a solvent company and its period of administration is over. It is also possible for a court or the creditors to terminate the DOCA if the company fails to abide by its terms.