Have you ever come across the term Deed of Company Arrangement (DOCA) when looking at options to lessen the burden of debt for your company? You may have wondered what is a DOCA and how it will help your company avoid liquidation if you are faced with insolvency.
A DOCA can be used when the company is in danger of becoming insolvent or has entered Voluntary Administration. A DOCA is a legally binding document between the company and its creditors to settle agreements to how the company will deal with its debts while continuing its operations. Its primary advantage is that it can help you to avoid the immediate winding up of your company.
How does a DOCA normally arise?
A DOCA will normally arise when the creditors vote for a DOCA during the creditor’s meeting in a Voluntary Administration. A DOCA can also be proposed to the creditors by the administrator if it is seen to be in the best interest of the creditors. After the creditors vote for a DOCA, the company must sign the deed within 15 business days after the meeting (unless the court allows for a longer time). Where the company fails to do so, the company will automatically enter liquidation with the administrator becoming the liquidator.
The DOCA will legally bind all the creditors, including unsecured creditors and those did not vote for the DOCA. The deed will be able to release the company from certain debts stated on the contract. Finally the deed will be terminated based on the terms of the DOCA. This is when the company makes the final payment to its creditors as agreed, enabling the business to continue as a solvent business. The DOCA can also be terminated when the court or creditors terminate the contract because the company has failed to abide by the deed.
We understand that financial instability can be a daunting time for you and your company. If you would like to learn more about corporate insolvency and how to maximise your company’s chances through a DOCA, please speak to ISA for free and confidential advice on our 24/7 toll-free hotline on 1800 003 883.