Deed of Company Arrangement (DOCA) Explained: The Deal That Decides Whether Your Company Survives

Deed of Company Arrangement (DOCA) Explained: The Deal That Decides Whether Your Company Survives

A deed of company arrangement (DOCA) is a binding agreement between a company and its creditors setting out how the company's debts will be dealt with — usually paying an agreed portion over an agreed period, with the balance wiped and the company continuing to trade. It's one of three outcomes creditors vote on at the end of a voluntary administration. It binds every unsecured creditor covered by it, including the ones who voted against it. It does not release anyone who personally guaranteed the company's debts. That last point is where directors get hurt.

Here's how a DOCA comes about, what it can and can't do, and the deadlines that decide it.

Deeds of company arrangement are governed by Part 5.3A of the Corporations Act 2001 (Cth), the same part that governs voluntary administration.

A DOCA isn't an alternative to administration — it's the outcome of one

You can't go straight into a DOCA. It sits at the end of a voluntary administration, and the sequence is fixed:

• An administrator is appointed. Most commonly by the directors, once they've resolved the company is insolvent or likely to become insolvent. Control passes to the administrator immediately.
• First creditors' meeting, generally within about eight business days. Creditors can replace the administrator or form a committee.
• The convening period runs — 20 business days from appointment (25 if the appointment falls near Christmas or Good Friday). The court can extend it. In that window the administrator investigates and any DOCA proposal is put together.
• Second creditors' meeting, held within five business days either side of the end of that period. This is the vote that decides everything. It can be adjourned once, for up to 45 business days.
• If a DOCA is accepted, it must be executed within 15 business days of that meeting. Miss it and the company automatically goes into liquidation.

From appointment to decision is roughly five to six weeks. That's the entire runway, and the proposal has to be built inside it while an administrator is running your company.

The three options creditors vote on

• Hand the company back to the directors. Rare — it needs the company to be solvent, which usually isn't why an administrator was appointed.
• Accept a DOCA. The company trades on under an agreed deal.
• Wind the company up. The administration converts to a creditors' voluntary liquidation.

Creditors vote by number and by value. If those two split, the administrator has a casting vote. Where the ATO is the largest creditor — which, in the matters I see, it usually is — its position effectively decides the outcome. A DOCA proposal that hasn't been built with that in mind is a proposal built to fail.

What has to stack up

The test creditors apply is blunt: does this leave us better off than liquidation? The administrator has to report on exactly that. So a DOCA needs a real funding source — a director contribution, a related-party payment, future trading profits, an asset sale — and it needs to be evidenced, not asserted.

A DOCA proposal that offers creditors marginally more than liquidation, from a business with no demonstrated capacity to fund it, is the most common way these fall over.

At a glance: DOCA, SBR and liquidation

For a smaller company that qualifies, SBR usually does the same job for less money and less disruption. A DOCA earns its keep where the company is too big for SBR, where lodgements or employee entitlements aren't clean enough to qualify, or where the situation needs the breathing space and the investigation that administration brings.

What a DOCA binds — and what it doesn't

Once executed, a DOCA binds all creditors in respect of claims against the company arising on or before the day specified in the deed. That includes creditors who voted against it and creditors who didn't vote at all. That's its power.

Its limits matter just as much:

• Personal guarantees survive. A DOCA deals with claims against the company. It does not extinguish a creditor's rights against a director, guarantor or other third party. Landlords, banks and equipment financiers can still come after you personally on a guarantee even while the DOCA is running to plan.
• Secured creditors aren't automatically bound as to their security unless they vote in favour, though the court has power to intervene in some circumstances.
• A lockdown DPN isn't touched. Appointing a voluntary administrator within the 21 days remits a non-lockdown Director Penalty Notice. It does nothing for a lockdown DPN — that personal liability is already fixed.
• The court can terminate a DOCA — for example where it was procured by misleading information, or where it's oppressive or contrary to creditors' interests as a whole.

If the DOCA fails

A DOCA is a contract with milestones. Miss the payments and it terminates, and the usual consequence is that the company goes into liquidation — with the added weight of a failed deed behind it, and a liquidator who now has an administrator's investigation already on file.

Which is the argument for building the payment schedule off what the business can genuinely produce rather than the number you think creditors want to hear.

Common questions

What is a deed of company arrangement?

A binding agreement between a company and its creditors, entered at the end of a voluntary administration, setting out how the company's debts will be dealt with. Creditors typically accept an agreed portion of what they're owed, paid over an agreed period, and the company continues trading.

How long does the DOCA process take?

From appointment of the administrator to the creditors' vote is generally about five to six weeks — a 20 business day convening period, with the second meeting within five business days either side of its end. Once accepted, the deed must be executed within 15 business days or the company automatically goes into liquidation. The deed itself then runs for whatever term it specifies.

Does a DOCA bind creditors who voted against it?

Yes. Once executed, a DOCA binds all creditors in respect of claims against the company arising on or before the day specified in the deed, whether they voted for it, against it, or not at all.

Does a DOCA release my personal guarantees?

No. A DOCA compromises claims against the company, not claims against you personally. Guarantees to landlords, banks, financiers and suppliers survive it, and those creditors can still enforce against you. This is the single most misunderstood feature of a DOCA.

What's the difference between a DOCA and Small Business Restructuring?

SBR sits under Part 5.3B, is limited to companies with total liabilities under $1 million, keeps directors in control the whole way through, and costs less. A DOCA sits under Part 5.3A and comes out of a voluntary administration, where an administrator takes control of the company first. For an eligible smaller company, SBR usually achieves a similar result more cheaply.

What happens if the company can't meet the DOCA payments?

The deed terminates and the company will usually go into liquidation. That's why the payment schedule needs to be built off the business's real capacity rather than what creditors would like to see.

Where I fit

I'm not a liquidator, trustee or administrator, and I don't take a referral fee. I work out whether a DOCA is genuinely the right instrument or whether SBR, a payment arrangement or a clean wind-up fits better, map your personal exposure — guarantees, DPNs, loan accounts — before an administrator is appointed rather than after, help shape a proposal that has a real prospect of getting the ATO's vote, and coordinate the right practitioner. In 38 years I've never once heard someone say they acted too early.

Weighing up administration or a DOCA? The decisions that matter get made before the appointment. Book a phone or video time at resolvency.com.au/book or call 0457 099 099.

General information only — not financial, legal or tax advice. Everyone's position is different, so get advice specific to yours before you act.

Related service: Restructuring & Trade-On Guidance — see how I can help.