We know how stressful it can be for a company director facing financial stress, but it’s important not to rush into drastic decisions; instead, explore structured options before jumping straight into liquidation.
One of these solutions is a Deed of Company Arrangement (DOCA). This legally binding agreement offers a pathway for a struggling company and its creditors to restructure debt, protect and keep operations alive.
DOCAs are routinely used by directors and their insolvency firm to work towards better outcomes for creditors and stakeholders, rather than immediately winding up a business’s operations.
As experienced business recovery experts, our team at BRI Ferrier understands that DOCAs aren’t one-size-fits-all. They are a flexible tool that can help businesses survive, recover, and eventually thrive again when properly managed.
In this BRI Ferrier blog, we’ll explain what a DOCA is, how a DOCA works, when a DOCA is used, as well as the key features, benefits, risks and disadvantages to help directors and business owners make clear and informed decisions.
Understanding a Deed of Company Arrangement
So what exactly is a deed of company arrangement (DOCA)? A DOCA is a binding legal agreement drafted up between a company and its creditors. This agreement sets out exactly how a company’s affairs will be handled in the aftermath of a company entering into voluntary administration.
The director of the said company will, in most cases, propose the DOCA details under the guise of a registered liquidator.
What does the DOCA aim to achieve?
- A DOCA is designed to maximise the chances of a business continuing to operate.
- A DOCA is designed to provide a better return to creditors than would be achieved by immediately winding up a company.
- An agreement between the company and its creditors on terms such as payment plans, compromises on amounts owed, or other conditions to resolve outstanding obligations.
- Creates a binding agreement with set terms. A court can also order other parties to be bound to the agreement even if they didn’t vote for it.
How Does a DOCA Work?
A Deed of Company Agreement is a step in the voluntary administration process that is triggered when an Australian company is in financial distress. The process of a DOCA is usually initiated with the official appointment of a voluntary administrator who takes control of the company’s affairs. The voluntary administrator will use their expertise to determine whether or not a DOCA or liquidation is the right move for the company.
Steps of the DOCA in practice include:
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Proposal and Creditors’ Vote
After a company enters voluntary administration, a DOCA proposal can be prepared. This is, in most cases, done by the directors in consultation with the administrator. Once the details have been laid out, the creditors will vote on whether or not to accept the DOCA. A majority of the creditors must approve the DOCA for the proposal to succeed.
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Signing and Binding Effect
If all relevant parties agree upon the details set out by the DOCA, they typically have 15 business days to sign the agreement. Once official, the DOCA becomes a binding legal agreement between the company and its creditors, outlining exactly how debts and business affairs will be managed moving forward.
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What the DOCA Does
A DOCA outlines all of the detailed terms for dealing with debts, which can include the following:
- Restructuring payments over a period of time
- Comprising debt amounts
- Selling or managing certain assets to repay creditors
- Allows the company to continue operating under new financial arrangements
The goal of a DOCA is to maximise the company’s chances of survival, or, if that isn’t possible, to achieve a better overall return for creditors than would be achieved through immediate liquidation.
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Implementation and Oversight of the DOCA
If a DOCA comes into effect, this will often return control of the company to the directors from the voluntary administrator. However, the latter still has a role as the deed administrator, who oversees the DOCA to ensure the terms are being fulfilled. In practice, this involves monitoring payments and enforcing the agreed obligations.
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Completion or Termination of the DOCA
The DOCA will continue to operate until its terms are fulfilled, such as all payments being made, or until it is terminated early due to non-compliance, creditor agreement, or court order. Once the DOCA has been completed, the company will typically exit administration and resume normal business operations.
So, a DOCA exists as a structured, legally enforceable pathway for a company and its creditors to work collaboratively on a recovery plan that can save the business or deliver better outcomes than would be achieved through a straight liquidation.
When is a Dead of Company Arrangement Used?
Does a dead of company arrangement (DOCA) make sense for your company’s circumstances? Below is a list of the reasons when a DOCA may be used instead of liquidation.
The top reasons a DOCA may be used:
- To avoid immediate liquidation and secure a better overall outcome.
- Achieve a maximum return for investors, then if the company were to be liquidated.
- It allows a company to continue trading and its business operations while meeting its obligations.
- A DOCA provides structure and certainty to repayments.
- It is a way to protect both employees’ jobs and broader business relationships.
- Allows an avenue to freeze creditor actions during administration.
- Provides an added layer of flexibility in financial restructuring.
- A top way to manage tax or other priority debts.
A DOCA is a proven pathway for a company in financial distress or insolvent, seeking a path forward other than liquidation, and that provides the best return outcomes for its creditors.
The Key Features of a DOCA
The key features of a deed of company agreement (DOCA) are as follows:
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Legally Binding Agreement:
As previously discussed, a DOCA is a formal and legally binding agreement between a company in financial distress and its creditors. This deed governs exactly how the company’s affairs and debts will be dealt with going forward. Once agreed, the DOCA imposes enforceable obligations on all parties.
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Follows Voluntary Administration
A DOCA becomes legally viable only once a company has entered into voluntary administration. It is one of the possible outcomes creditors can choose following the second meeting of creditors.
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The Approval of Creditors
For a DOCA proposal to proceed, there must be a vote in which the majority must approve of the conditions set out in the DOCA. This is performed at a relevant creditors’ meeting.
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Binding on Creditors
Once approved and executed, a DOCA binds all unsecured creditors, even those who voted against it. Secured creditors and other parties can also be bound if they’ve voted in favour or are ordered to be bound by the court.
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Clearly Outline Repayments and Obligations
The DOCA sets out exactly how debts will be managed and repaid moving forward. This can include several different methods, including:
- Repayment schedules or staged payments
- Compromises on the amount owed
- Sale of assets to satisfy debts
- Conditions for ongoing trading or capital injections
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Specific Terms and Conditions
Everything will be plainly and clearly set out within the DOCA. These details include:
- The name of the deed administrator overseeing the DOCA
- The assets or payments that will be available to the creditors
- The priority and order of payments (with provisions for employee entitlements)
- The duration and any suspension of creditor rights
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Flexible and Individually Tailored
A DOCA is tailored to a company’s and its creditors’ individual circumstances, enabling practical solutions rather than resorting to winding up business operations.
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Provides An Alternative to Liquidation
One of the most enticing features of a DOCA is that it provides an alternative to immediate liquidation. A DOCA aims to either keep the company going or deliver a better return to its creditors than would otherwise be the case. It is an incredibly important mechanism within the Australian corporate insolvency landscape.
The Benefits of a DOCA
- It is a cheaper and quicker option compared to other options for struggling companies.
- With a DOCA, there is reduced litigation for directors and creditors.
- It allows creditors to maintain a relationship with the company.
- Under a DOCA, a business can continue to trade in its existing structure.
- A business can continue to honour existing contracts and agreements more effectively before entering voluntary admission.
- A DOCA can release unsecured claims against the company.
- A DOCA is a very flexible instrument for saving a business and putting it on the right path.
A Deed of Company Arrangement (DOCA) remains one of the most effective restructuring tools under current Australian insolvency law, providing a formal framework for companies in financial distress to reach an agreed outcome with creditors and potentially avoid liquidation.
The Risks and Disadvantages of a DOCA
While the benefits of a DOCA are widely documented, there are still several considerations you’ll want to be aware of before moving forward with it.
- A DOCA can be challenged in court if the details are seen as unfair to certain creditors.
- Creditors may still receive only a partial repayment of what they are owed under the agreement.
- Secured creditors retain the ability to enforce their security interests outside the DOCA’s terms.
- Personal guarantees remain enforceable against directors or guarantors even if the company enters a DOCA.
- The DOCA’s success is dependent on accurate valuations and viable restructuring plans, which may not materialise.
- If a DOCA fails or is not executed, the company may still be subject to liquidation.
- Creditors may lose the right to pursue separate recovery actions once the DOCA is in effect.
- A DOCA can be complex and costly to negotiate and administer when creditor interests conflict.
DOCA vs Liquidation: What’s the Difference?
In the world of business, it can be easy to confuse a DOCA and a liquidation, especially when facing financial stress. Still, it is important to know that they are distinct financial instruments. A DOCA at its core is about building a business back up and getting (if possible) the company back on its feet, where liquidation will almost immediately cease a company’s affairs, and focus solely on distributing assets to the relevant parties.
So how do the two differ from one another?
- A DOCA will allow a business to continue its operations under a set of terms, whereas liquidation forces the immediate and permanent closure of a business.
- A DOCA clearly outlines how debt is to be repaid and what the stages of repayment will look like. Liquidation usually distributes what’s left of a company’s assets to the creditors instantly, often resulting in a smaller return.
- If you fail to meet the obligations set out by the DOCA, you can find yourself in a position where liquidation is the only option left to you.
Do you need further insight into how a DOCA and liquidation differ from one another? Check out BRI Ferrier’s handy table below that outlines all aspects of the two.
| Feature | DOCA | Liquidation |
| Purpose | A formal agreement to restructure debts and maximise the chance of the company continuing, or provide a better return to creditors | A terminal process to wind up the company, sell assets and distribute funds to creditors |
| Timing & Process | Happens after voluntary administration and is agreed with creditors | Can be initiated directly by creditors, directors, or the court, as a compulsory or voluntary process |
| Business Operations | The company can continue trading under the specific terms of the DOCA | Trading will generally stop, and the business will cease its operations |
| Control | Directors may retain control, but a deed administrator oversees implementation | Control passes to a liquidator, and the directors lose control |
| Creditor Returns | Creditors may get better returns over time via structured payments or compromises | Creditors receive one-off distributions from realised assets in priority order |
| Debt Treatment | Debts can be compromised, restructured, or deferred as agreed | Debts are crystallised and paid only from asset realisations |
| Employee Impact | Employees may remain employed while the company trades under DOCA | Employees are typically terminated; entitlements are paid from the liquidation pool |
| Ceditor Action | A moratorium on enforcement and legal proceedings can apply while a DOCA is negotiated | No moratorium, creditors can enforce rights once liquidation starts (subject to liquidation procedures) |
| Outcome for Company | The company may survive or return to normal operations after the DOCA is fulfilled. | The company is usually deregistered and dissolved after liquidation. |
Why Choose BRI Ferrier?
If you are looking for business recovery experts in Sydney, choose BRI Ferrier. As trusted liquidation specialists, BRI Ferrier provides recovery, insolvency, forensic accounting and advisory services to businesses throughout NSW and Australia.
As the firm’s largest and longest-established office, BRI Ferrier Sydney has a wealth of in-house expertise to address our clients’ most difficult financial challenges.
Explore our financial solutions: Business Insolvency Sydney, Forensic Accounting Sydney, Business Advisory Sydney and Business Insolvency. Get to know the businesses we administer, how they progress and the news related to all our business matters.
With our various services, we serve businesses across Australia. BRI Ferrier specialises in recovery, personal insolvency, advisory, safe harbour, forensic accounting and small business restructuring, with offices in Melbourne, Perth, Cairns, Brisbane, Townsville and Auckland.
By partnering with our team at BRI Ferrier, you can focus on what you do best. Contact our insolvency firm team today.
