A deed of company arrangement (DOCA) is a binding, flexible agreement between a company and its creditors. If you are a party to a DOCA, you are likely a creditor to a company that is unable to pay its debts. This article explains what a DOCA is, when you might use one and what it means for your debt.

What is Administration?

Usually, a company will use a DOCA if it is in administration. This means that an administrator has been appointed to resolve the company’s financial issues. This often happens when a company is presumed to be insolvent, which means that it cannot pay its debts. A company that is presumed to be insolvent will appoint an administrator in order to ‘take a break’ from the day-to-day affairs of the company. The goal of administration is to take stock of the company’s assets and liabilities and repay its debts.

There are three possible outcomes in the administration process. The company will:

  1. be liquidated;
  2. return to the directors’ control or;
  3. enter into a DOCA.

Why Enter Into a DOCA?

If you are a creditor of the company, you will have the opportunity to vote on how the company should proceed. Creditors will choose a DOCA to either:

  • maximise the chances of the company continuing to operate; or
  • provide a better return than the creditors would get if the company was wound up. 

The DOCA may allow the company to pay all or part of its debts over time. It may also allow the company to continue trading whilst paying all or some of those debts. 

How Does the Process Work?

If creditors vote for the company to enter into a DOCA, the company must sign the document within 15 business days of the creditors meeting. If it fails to do so, it will automatically enter liquidation. The deed is binding upon all unsecured creditors (including those who voted against it). It is also binding on the property of secured creditors who vote in favour of the deed.

What Does the DOCA Include?

Usually, the DOCA will contain standard contract provisions. In addition, a DOCA must include certain specific provisions. For example, it must include the:

  • name of the administrator;
  • property that will be used to pay creditors;
  • debts covered by the deed and the extent to which they can be met;
  • order in which creditors will be paid;
  • conditions (if any) for the deed to come into and continue operation; and
  • circumstances in which the deed terminates.

As long as these provisions are included, the DOCA can be adjusted to suit the company and its creditors. 

Will I Get Paid? 

You will need to prove your debt to the administrator to ensure that the deed represents and accommodates your interest. Usually, you will fill out a ‘proof of debt’ or other claim form and attach supporting documents, such as relevant invoices and contracts. This can be difficult if your claim is based on an oral agreement or if you cannot provide invoices.  

The administrator may ask for further information or reject your claim if you do not provide enough information. If your claim is rejected, you can ask the administrator what further information is required. You can also seek legal assistance. However, you should do so quickly, as you may have limited time to challenge the administrator’s decision.   

If your claim is accepted by the administrator, the deed will include you in the list setting out how the company will pay its debts.

When Will I Get Paid?

A DOCA is a flexible deed. This means that the order of payment will depend on the circumstances of the particular company and its creditors. Sometimes, the deed sets out the same priority as liquidation. However, creditors may also agree to a unique order and arrangement. 

For example, the deed may specify that:

  1. the company is to continue trading for 3 months;
  2. it will then be sold as a ‘going concern’; and
  3. the proceeds of the sale will be returned to creditors.

A common order of priority set by a DOCA is as follows:

  1. costs and expenses of administration;
  2. outstanding employee wages and superannuation;
  3. outstanding employee benefits (e.g annual leave, sick leave); and
  4. unsecured creditors.

Can I Challenge the DOCA?

When the DOCA is proposed at the second meeting, you will have the chance to vote with other creditors on whether it should come into effect. You should make any requests to vary the terms of the DOCA before this stage. Once the DOCA has been voted on, it becomes more difficult to challenge. You may be able to challenge a DOCA in court, but this can be a time consuming and costly process. If you have concerns about the DOCA, it is best to raise them before it comes into effect.

Key Takeaways

A deed of company arrangement (DOCA) is designed to help a company to pay its debts. It offers a flexible approach to administering a company’s financial affairs and a tailored solution to the needs of various creditors. If a company that owes you money has entered into a DOCA, you should actively participate in the process of forming and adopting the deed. This will give you the best chance of recovering your debt. If you are unsure about how a DOCA affects you, contact LegalVision’s debt recovery lawyers on 1800 534 315 or fill out the form on this page. 

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