DEED OF COMPANY ARRANGEMENT
What is a Deed of Company Arrangement?
A Deed of Company Arrangement ("DOCA") is a formal agreement to satisfy a company’s debts, made between the company and its creditors and any other relevant third parties. The Deed will set out the extent or nature of obligations, and relationships between those that are party to it. The Deed binds all creditors and releases the company from its debts at least to the extent provided for within its terms and conditions.
How long does a Deed of Company Arrangement last?
The DOCA runs for as long as is provided for in its terms. To be valid, a DOCA must state the period of moratorium and the duration of its operation, including an end date and/or ending conditions.
Are secured creditors bound by the Deed of Company Arrangement?
Secured creditors are bound by a DOCA only if they become a party to the deed or otherwise agree to be bound by it. The Court may make an Order which limits the rights of the secured creditor, but this is not common.
How does a Deed of Company Arrangement affect Director’s Guarantees?
Creditors who hold director’s guarantees are bound by the moratorium during the specified period, but can enforce them once the company is wound up. The release of the company’s debt under the terms of the Deed does not discharge a guarantor’s liability for any shortfall.
Can creditors alter a Deed of Company Arrangement after it has been signed?
Creditors may vary or terminate the DOCA by resolution at a creditors’ meeting. This meeting must be convened by an administrator at the request of not less than ten percent of the value of all creditors. Alternatively, the administrator may convene such a meeting of creditors at his own volition. Any amendment to the Deed must also have the consent of the company.
What happens to tax losses in a Deed of Company Arrangement?
A company proposing a DOCA is likely to have carried forward tax losses. These losses usually can be offset against profits from future trading of the company. However, carried forward losses may be lost or reduced if a company pays its creditors less than 100 cents in the dollar. Directors should seek tax advice before entering a DOCA that contemplates tax losses being available.
Can a Deed of Company Arrangement administrator pay dividends?
A deed administrator’s ultimate role is to pay a dividend to creditors.
How should a company subject to a DOCA be described?
Companies subject to a Deed Of Company Arrangement (DOCA) are required by law to promulgate their status. If for example, Acme Pty Ltd is subject a DOCA, the company must be described on all its public documents as “Acme Pty Ltd (Subject to Deed of Company Arrangement)”.
When does a Deed of Company Arrangement end?
The DOCA ends when their terms are completed and a final dividend paid to creditors.
What happens if the company does not comply with the Deed of Company Arrangement?
The company will be deemed to be in default if the terms of a DOCA are not satisfied. A default notice will usually be issued within a few days. If the default is not rectified within the period set out in the notice, the DOCA will be considered breached and may be terminated by; (1) the provisions of the agreement, automatically terminating the DOCA; or (2) by the passing of a resolution at a meeting of creditors, or (3) by an application to the Court. These options are likely to result in the company being placed into liquidation at that time.