At RRI Advisory, we understand that dealing with financial difficulties can be a challenging experience for any business owner. When a company is facing financial distress, the options available can be overwhelming and complicated to understand. One of the options available is to restructure the business by way of a Voluntary Administration and a Deed of Company Arrangement (DOCA). This can be a valuable tool for businesses struggling to meet their financial obligations. In this article, we will explain what a DOCA is, how it works, and the benefits it can offer to a struggling company.
What is a Deed of Company Arrangement
A Deed of Company Arrangement (DOCA) is a legally binding agreement between a company and its creditors, which outlines a plan for the company to repay its debts and continue trading. The agreement must be approved by creditors, and once approved, the company is bound by its terms. The DOCA is a formal alternative to liquidation, which can be initiated voluntarily or by court order.
The RRI Team has had extensive experience with implementing a DOCA and our Partner John Kukulovski believes “that a DOCA is the best outcome where a director is wanting to continue operating the business post the implementation of a restructure plan“.
How does a DOCA Work
When a company is in financial distress, the directors can propose a DOCA as an alternative to liquidation as part of the Voluntary Administration Process. The proposal must be approved by creditors, who will have the opportunity to vote on the proposal. For a DOCA to be approved, it must receive the support of the majority of creditors in attendance at the second meeting of creditors, who must represent at least 50% of the total value of the company’s debts voting on the resolution to approve the DOCA.
Once the DOCA is approved, the company will be bound by its terms, which may include a range of measures aimed at restructuring the company’s finances and operations. These measures may include:
- A payment plan to repay outstanding debts to creditors
- The sale of assets to raise funds for debt repayment
- Restructuring the company’s operations to increase efficiency and reduce costs
- The appointment of an independent administrator to oversee the DOCA
The Benefits of a DOCA
A DOCA can offer several benefits for a company in financial distress including:
- Avoiding liquidation: A DOCA can allow a company to avoid liquidation, which can be a stressful and costly process. By implementing a DOCA, the company can continue to operate and generate revenue, while repaying its debts over time.
- Tailored to suit the company’s needs: Unlike a standard liquidation process, the terms of a DOCA can be tailored to suit the specific needs of the company. This can include flexible repayment terms, asset sales, or restructuring plans to improve the company’s financial position.
- Protection for directors: A DOCA can offer protection for directors from personal liability for the company’s debts, as long as they act in good faith and in the best interests of the company.
- Better outcome for creditors: A DOCA can result in a better outcome for creditors, as they may receive a higher return on their debts than they would in a liquidation process.
Conclusion
In summary, a Deed of Company Arrangement can be a valuable tool for companies facing financial difficulties. By offering an alternative to liquidation, it can allow a struggling business to continue trading and save jobs. The terms of the DOCA can be tailored to suit the needs of the company, and it can offer greater flexibility than liquidation. At RRI Advisory, we understand the challenges faced by companies in financial distress, and we are here to help. Contact us to discuss your options and find out if a DOCA is right for your business.
If you have any questions about the content of this article or would like to discuss your options considering insolvency matters, please use the button at the top of this page to set up an obligation free consultation or email us at enquiries@rriadvisory.com.au
Disclaimer
This information and the contents of this publication, current as at the date of publication, is general in nature to offer assistance to RRI Advisory’s clients, prospective clients and stakeholders, and is for reference purposes only. It does not constitute legal or financial advice. If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action.