What is a Deed of Company Arrangement?

A Deed of Company Arrangement (DOCA) allows businesses in danger of being liquidated to continue to trade. The Deed is prepared by an administrator and presented to creditors for approval. It is tailored to meet the specific requirements of both creditors and business.

A DOCA can be beneficial to all parties as creditors can gain a better return on their investment than if the business was wound up immediately and the deed allows the business to continue trading. Creditors will also know how the assets and affairs of the business will be handled should it become insolvent or enters voluntary administration.

Terms covered by a Deed of Arrangement include:

• Property available for paying to creditors
• Terms and nature of any moratorium
• Deed administrator appointed
• When and how the DOCA will run
• Order of proceeds of company assets will be distributed
• If and how the company will be released from its debts
• Date of claims the DOCA includes

Payments to Creditors

A DOCA can include one of the following circumstances regarding payment to creditors:

• An immediate payment and possible future payment after the sale of assets or trading profits
• A series of payments made from the trading profits of the business over time
• An immediate one off payment to creditors in full via funds from a third party or directors.

Executing the Deed

The DOCA must be executed within 15 days of the creditor’s meeting if the creditors resolved to enter the DOCA. If the DOCA isn’t executed within time, the business automatically goes into liquidation. Creditors have the right to appoint another deed administrator if they don’t want to use the Voluntary Administrator.

The Directors regain control of the Company however they can have some restrictions.

Terminating the Deed

The DOCA can be terminated as per its terms, usually when the business makes final payment to creditors. Once the agreement is terminated the business can continue to trade as a solvent company. The business no longer need to include ‘subject to a Deed of Company Arrangement’ on public documents and contracts.

If the business doesn’t abide by the terms of the DOCA, the court or creditors can terminate the DOCA.

If you have any questions about a Deed of Company Arrangement and whether one is suitable for your business, contact an experienced consultant on (08) 9463 3000 or send us an email.