It is important for business leaders to understand there are alternative options to simply liquidating their company.
In many cases, these avenues can ensure that the business is able to remain profitable and provide a better return to creditors than winding up operations. One of these examples is a Deed of Company Arrangement (DOCA), set out by the Deed Administrator. Read on to find out more about what a DOCA is, and the responsibilities of an administrator.
Deed of Company Arrangement
During times of serious debt, business leaders have the opportunity to form a DOCA between the company and its creditors. This binding arrangement is essentially a blueprint for how the company plans to resolve its debt issues without moving into liquidation.
Business directors and/or a third party formulate and propose the DOCA during a voluntary administration, before it is published in the administrator’s major report for creditors. Upon review of the DOCA, creditors are asked to accept the terms and pass a resolution that the company can execute the DOCA. This usually occurs as part of a major creditor meeting.
Common DOCA proposals
Essentially, the aim of a DOCA is to keep the business profitable and continue to provide solid returns to creditors. This is often considered an alternative to liquidation.
While the contents of a DOCA vary from business to business, there are several common proposals that we see at Corporate Lifeline. This includes:
- A DOCA proposal providing funds for a lump sum payment to pay debts, after which time other payments are made periodically as set out in the DOCA. In this situation, a percentage return/dividend can be made to unsecured creditors at the DOCA’s conclusion.
- A DOCA proposal including the recapitalisation of a company and the sale of all or a portion of the company’s assets. It is critical to note that, in the event the business continues to trade as normal, any payments through a DOCA can be made from ongoing trading profits.
Who sets out the DOCA?
To ensure that the company complies with the DOCA outline, a Deed Administrator is appointed. This individual is usually already appointed as the Voluntary Administrator and is the gatekeeper of the DOCA processes moving forward.
A Deed Administrator will commonly play no management role in the company as operations are handed back to the directors who work to the DOCA requirements. In the event that the DOCA funds are received in a timely manner, the Deed Administrator is responsible for allocating these funds to the creditors highlighted in the DOCA.
For business leaders, it is important that the role of a Deed Administrator is understood and respected at all times.
When does a DOCA end?
There are many reasons why a DOCA comes to a conclusion, with each holding different consequences for both business leaders and creditors. Regardless of the end result, it will be important for enterprises to speak to the expert team at Corporate Lifeline.
Here are four possible reasons why a DOCA will finish:
- The terms of the DOCA are met in full by the company;
- It is terminated under the terms of the DOCA due to a default;
- The creditors resolve to terminate the DOCA due to a default; or
- he Court makes orders that the DOCA be terminated due to a default or any other reason.
How can Corporate Lifeline help?
If a Deed of Company Arrangements is considered as an option for your business, our consultants can be of assistance. Highly experienced in these strategies, we can ensure it is executed and implemented in the right manner.