For directors, advisers, and creditors, understanding what happens after a Deed of Company Arrangement (DOCA) is just as important as understanding how the process works.
SALEA Advisory has proven experience executing DOCAs. According to Insolvency Australia, Director Sule Arnautovic completed more Deed of Company Arrangement appointments than any other insolvency practitioner in New South Wales in the last financial year, making SALEA one of the state’s most active firms in this area.
This article outlines what directors and stakeholders need to know about the period after a DOCA is approved, including compliance obligations, creditor rights, and what successful completion involves.
What Is a DOCA?
A DOCA is a binding agreement between a company and its creditors. It sets out how debts will be repaid after voluntary administration. The goal is to provide a better result than liquidation and, in many cases, allow the business to continue trading while repaying creditors under new terms.
Creditors must vote to approve the proposed arrangement. If it is approved, it becomes binding on all unsecured creditors, even those who didn’t vote for it.
Legal Protections
Once the agreement is in place, unsecured creditors are bound by its terms rather than pursuing recovery actions.
Secured creditors who voted against the DOCA proposal are not automatically bound by it. However, they cannot enforce their security without permission from the court.
What Happens After the DOCA is Approved?
Once signed, directors usually resume control of the company’s operations. However, they must follow the rules set out in the deed. The Deed Administrator continues to oversee the agreement and make sure the company complies.
It’s important to note that personal guarantees remain enforceable. A DOCA doesn’t release directors or third parties from personal liability.
When (and How) does the DOCA End?
A DOCA typically ends when:
- All payments have been made and obligations met, or
- The term specified in the deed expires.
However, there are other ways it can terminate:
- By agreement: Creditors can vote to end or vary the agreement at a meeting.
- By default: If the company fails to meet its commitments and doesn’t rectify the breach.
- By court order: Creditors can apply to terminate the DOCA if it’s oppressive or prejudicial.
After the DOCA ends successfully, the company exits external administration and can return to normal trading.
Common Questions About DOCAs
Does a DOCA wipe all company debts?
No. Only debts included in the agreement are compromised and released. Some liabilities, like personal guarantees and certain statutory obligations, may still apply.
Can a DOCA be terminated early?
Yes. If the company repays creditors or meets all obligations early, the Deed Administrator can effectuate the DOCA ahead of schedule. This is often viewed positively by creditors.
What happens to personal guarantees after a DOCA?
They remain enforceable unless specifically released. Creditors can still pursue company directors personally for guaranteed debts.
Can creditors challenge a DOCA after it’s signed?
Yes. A creditor may apply to court to vary or terminate a DOCA if it’s unfair or prejudicial. However, this must be done within the timeframe set by the court or legislation.
Business After a Deed of Company Arrangement
A successful DOCA can help avoid winding up the company if the Deed Administrator and directors work together.
You should now understand what happens after a Deed of Company Arrangement. If you’re a director facing financial distress or an adviser supporting a client through the voluntary administration process, it’s important to work with an insolvency specialist.
SALEA Advisory is one of Australia’s leading Deed Administrators. Contact us to discuss whether a Deed of Company Arrangement is right for your situation.
