Know your responsibilities as a director
What exactly is a DOCA
A deed of company arrangement is a binding arrangement that is put in place following the company going into voluntary administration. It is effectively an agreement between the company and the creditors in terms of how the company will operate going forward. The aim in putting a DOCA in place is to keep the company operating and attempt to maximise the potential opportunities for the company going forward and hopefully maximise the return that the creditors can get from the company.
So, how does a DOCA work.
- It would generally be proposed by the creditors at a creditors meeting that the company enter into a deed of company arrangement.
- The creditors would vote on the proposal and if agreed then the company would have a period of 15 days to sign the deed (unless extended by a court). If the company doesn't sign the deed then it would automatically enter liquidation.
- The deed itself would outline how payments are to be handled to creditors and how the business intends to trade going forward.
- All unsecured creditors are bound by the agreement. This is regardless of whether they voted for it or not.
- Secured creditors are bound by the agreement if they voted for the agreement. Secured creditors who didn't vote for the agreement would only be bound by the agreement if a court ordered them to be bound.
- If a creditor has a personal guarantee then they can still pursue the director or officer who made that guarantee.
- A deed administrator is appointed to manage the deed and to ensure that the company meets it's commitments under the agreement.
How do creditors get paid under such an agreement
- The agreement will outline how the creditors are to be paid.
- Creditors may receive a lump sum or may receive a series of payments depending on what was agreed.
- As a creditor you can monitor the execution of the agreement to ensure that it is acted on fairly.
- Creditors should consider negotiating consequences of failure when the arrangement is initially proposed.
- The deed administrator has a duty to report to ASIC on a 6 monthly basis in respect of the payments and receipts of the company.
- The deed will indicate the order in which payments are made to creditors. Employee entitlements will take priority over unsecured creditors.
Need more information
If you are an unsecured or a secured creditor of a company that is proposing a deed of company arrangement then you need to be aware of your rights under Australian corporate law.
Jamieson Louttit and Associates are expert insolvency advisors who can give you unbiased advice in terms of what your options are, what your next steps should be and how to minimise your liability. Call us today on 02 9231 0505 for a free initial discussion in terms of how we can help you.