Deed of company arrangement (DOCA): how it works and who it binds

A deed of company arrangement (DOCA) is a binding agreement between a company and its creditors that sets out how the company will deal with its debts. It comes out of a voluntary administration, and creditors vote on it at the second creditors’ meeting. The aim is to keep the company or its business going, or to give creditors a better return than an immediate liquidation.

What is a deed of company arrangement?

A DOCA is a formal, binding agreement that sets out how a company will deal with its debts and what its creditors will receive. For how it compares with winding the company up, see DOCA vs liquidation. It can only come out of a voluntary administration: creditors vote on the administrator’s recommendation at the second creditors’ meeting. The aim is to give the company, or as much of its business as possible, the best chance of continuing. Failing that, a DOCA should return more to creditors than an immediate liquidation would.

Each DOCA has its own terms. For example, a DOCA might be funded by contributions from future trading profits, a contribution from the directors or a third party, or the sale of particular assets. The deed then sets out how much the company will pay creditors, when, and in what order.

How a DOCA is proposed and approved

1. Voluntary administration starts. An independent registered liquidator becomes the voluntary administrator and takes control of the company.
2. Someone puts forward a proposal. Generally, the directors or a third party propose the DOCA, usually after talking it through with the administrator.
3. The administrator reports to creditors. The report gives enough detail about each proposal for creditors to make an informed decision. It also compares the likely return under the DOCA with the likely return in a liquidation.
4. Creditors vote at the second meeting. They decide whether the company enters the DOCA, goes into liquidation or returns to the directors’ control.
5. The company signs the deed. If creditors vote for the DOCA, the company must sign the deed within 15 business days of the meeting, unless the court allows longer. If the company doesn’t sign in time, it automatically goes into liquidation and the administrator becomes the liquidator.

Who is bound by a DOCA?

• Unsecured creditors: the deed binds all unsecured creditors, even those who voted against the proposal.
• Secured creditors, property owners and lessors: the deed binds them only if they voted for it, unless the court orders otherwise.
• Employees: the deed must give employees priority for their outstanding entitlements, unless eligible employees agree, by a majority in both number and value, to vary that priority. However, the Fair Entitlements Guarantee (FEG) is only available if the company goes into liquidation.
• Personal guarantees: a DOCA generally doesn’t stop a creditor from enforcing a director’s personal guarantee outside the deed, although some deeds deal with guarantees in their terms. Get advice early.

The deed administrator

Usually, the former voluntary administrator becomes the deed administrator and makes sure the company carries out its commitments under the deed. They must tell creditors as soon as practicable after becoming aware of a material breach of the deed, and must lodge annual accounts of receipts and payments with ASIC. In addition, some DOCAs set up a creditors’ trust. As a result, the company can leave external administration sooner, and a trustee deals with creditors’ claims instead.

What happens to the directors?

While the company is in a DOCA, how much control the directors get back depends on the terms of the deed. Once the company completes the DOCA, the directors regain full control, unless the deed provides for the company to go into liquidation at that point.

Varying or ending a DOCA

• Completion: a DOCA ends once the company has done what the deed requires.
• Variation: after the company signs the deed, creditors can resolve to vary its terms at a meeting.
• Ending by creditors: creditors can vote to end the DOCA, which may put the company into liquidation.
• Ending by the court: the court can also end a DOCA, for example if creditors received false or misleading information, or if the deed is unfair or discriminatory to one or more creditors.

Deed of company arrangement vs liquidation

If your company owes $1 million or less, small business restructuring (SBR) may also be an option. In SBR, the directors stay in control while a restructuring plan is put to creditors.

Is a DOCA right for your company?

A DOCA can suit a company with a business worth saving that can offer creditors more than they would receive in a liquidation, for example from future trading profits or a contribution from the directors or a third party. However, it usually needs a realistic funding source and a proposal creditors will support. We can look at your company’s position in a confidential first conversation and explain whether voluntary administration and a DOCA, SBR, a payment arrangement or liquidation fits best.

How Greengate helps

Our registered liquidators act as voluntary administrators and deed administrators for small and medium businesses in Sydney, Brisbane and across Australia. We work with directors on proposals that creditors can assess, and we explain each step in plain English, Mandarin, Cantonese or Korean. Examples of our DOCA work:

• NDIS provider with more than 60 employees and 100 participants: a DOCA funded from trading profits
• Franchise network: voluntary administration followed by a DOCA
• Manufacturing business: voluntary administration followed by a DOCA

Common questions

What is a deed of company arrangement?

A binding agreement between a company and its creditors that sets out how the company will deal with its debts. It comes out of a voluntary administration, and creditors vote on it at the second creditors’ meeting.

Who can propose a DOCA?

Generally, the directors or a third party propose a DOCA, usually after talking it through with the voluntary administrator.

Who is bound by a DOCA?

It binds all unsecured creditors, even those who voted against it. However, it binds secured creditors, property owners and lessors only if they voted for it, unless the court orders otherwise.

How long does a DOCA last?

It depends on the terms of the deed. A DOCA ends once the company has done what the deed requires, or earlier if creditors or the court end it.

What happens if a DOCA fails?

If the company doesn’t sign the deed within 15 business days of the creditors’ vote, it automatically goes into liquidation. Similarly, if creditors or the court end a signed DOCA, the company may go into liquidation.

Does a DOCA release my personal guarantees?

Not usually. A DOCA deals with creditors’ claims against the company. Creditors can generally still enforce a director’s personal guarantee outside the deed, although some deeds deal with guarantees in their terms, so get advice before anyone puts a proposal to creditors.

This page is general information, not advice about your situation. Sources: ASIC Deed of company arrangement for creditors, Voluntary administration: a guide for creditors and Insolvency for directors.