Disclaimer: This publication contains comments of a general nature only, and is provided as an information service.
It is not intended to be relied upon as, nor is it a substitute for specific professional advice.
Businesses and companies who have become reliant on the government stimulus package and deferred debt arrangements to survive the ongoing coronavirus pandemic should be aware of the challenges they face once the government stimulus and deferred payment arrangements end in September 2020. Any business which faces the risk of being unable to pay its deferred debts to creditors should strongly consider strategies that will help them to survive in the long term. One such strategy that may be available is the Deed of Company Arrangement (DOCA).
A DOCA is a binding arrangement between a business and its creditors governing how the company’s affairs will be dealt with. It aims to maximise the chances of the company, or as much as possible of its business, continuing, or to provide a better return for creditors than an immediate winding up of the company, or both. Other benefits of a DOCA include ensuring that the employees of the company get to keep their jobs and the company a chance to retain control over its assets.
A DOCA is usually implemented by the business first going into voluntarily administration. The administrator will conduct an investigation and report their findings to the creditors at the second creditor meeting. The administrator’s report will outline the terms of the proposed DOCA, which must specify the following:
- Who the Deed Administrator will be.
- The identification of property available to pay creditors.
- The nature and term of the moratorium.
- How the company will be released from its debts.
- When the DOCA will terminate and how.
- What restrictions the directors are bound by.
- How and in what order the proceeds of the company’s assets are distributed.
The creditors will have 15 days to vote to accept the DOCA proposal or vote for the business/company to be placed into liquidation. For a resolution to be passed, it needs a majority in number and a majority in value of creditors to vote in favour of the resolution.
If a DOCA is accepted, it will bind the company, its officers, and its members to a defined and specific legal arrangement. The company will be subject to the DOCA and the decisions it makes during this period will be monitored by the deed administrator and stakeholders such as directors and secretaries, shareholders, secured creditors who voted for the DOCA, unsecured creditors, anyone who owns company property, and anyone who leased property to the company.
A DOCA can be a complex process involving multiple parties with many issues to be addressed. Businesses and companies who wish to utilize it should seek proper legal advice before doing so.