What Is A Deed Of Company Arrangement - DOCA

A Deed of Company Arrangement (DOCA) is a legally binding agreement in Australia used as part of the voluntary administration process to help a financially troubled company restructure its debts, continue trading, or provide a better return to creditors than an immediate liquidation. A DOCA is proposed by the company's directors, administrators, or creditors and is voted upon by the creditors. If a majority of creditors in number and value approve the DOCA, it binds all unsecured creditors, owners of the company, and the company itself.

A DOCA is used when there is a reasonable prospect of rescuing the company or maximising the return for creditors. It provides an opportunity for the company to restructure its debts and operations, negotiate with creditors, and potentially avoid liquidation.

Here's an example of when a DOCA might be used:

Company X is a medium-sized manufacturing business that has been experiencing financial difficulties due to a decline in sales, increased competition, and high levels of debt. The company's directors recognize that they cannot meet their financial obligations and decide to appoint a voluntary administrator to assess the company's financial position and explore potential solutions.

The voluntary administrator conducts an investigation into the company's affairs and identifies several potential strategies for improving its financial position, including cost-cutting measures, renegotiating contracts with suppliers, and securing additional financing. Based on these findings, the administrator believes that a DOCA may provide a better outcome for the company and its creditors than liquidation.

The proposed DOCA includes provisions to:

Write off a portion of the company's unsecured debt, allowing the company to reduce its overall debt burden.

Renegotiate contracts with key suppliers, resulting in lower operating costs.

Obtain additional financing from an investor who is willing to inject capital into the company in exchange for an equity stake.

Implement cost-saving measures, including staff reductions and improved inventory management.

The creditors of Company X are invited to vote on the proposed DOCA. They ultimately decide that the DOCA is likely to provide a better return on their claims than if the company were to be liquidated. Consequently, the creditors approve the DOCA, which becomes legally binding on all parties.

Company X then begins implementing the agreed-upon restructuring plan under the terms of the DOCA. This process allows the company to continue trading, preserve jobs, and potentially return to profitability while providing a better return to creditors than liquidation would have offered.

In summary, a Deed of Company Arrangement is a legally binding agreement in Australia that is used in the voluntary administration process to help a financially troubled company restructure its debts, continue trading, or provide a better return to creditors than an immediate liquidation. The decision to enter into a DOCA is made collectively by the company's creditors based on a proposed plan that outlines how the company will address its financial issues and meet its obligations to creditors.