One of your clients is a major creditor for a company in administration, and has now asked you to represent him/her at the second creditors meeting next week. On the agenda is the proposal of a Deed of Company Agreement, commonly referred to as a DOCA. What do you know about DOCAs, and if appointed proxy how would you know how to cast your vote?
Put simply, a DOCA is a deal between the company and its creditors whereby creditors will receive all or a proportion of their debts over a period of time. The relevant legislation is in place to allow flexibility enabling the contents of the DOCA to meet the needs and circumstances of the company and its various creditors. Debts may be compromised, repayments may be delayed or even paid in installments. Debts could also be converted into equity. In return, the creditors may put controls in the DOCA so that the financial performance of the company can be monitored by the Deed Administrator. The deed may also provide the power to wind up the company if this is ultimately in the creditors’ interest.
Before the meeting, in a Report to Creditors, the Administrator should form an opinion on whether an arrangement with the company’s creditors would be in the creditors’ interest or whether other courses of action would be appropriate.
When considering the administrator’s proposal, the individual creditor should consider the arrangement from his or her own point of view. One should examine the terms of the DOCA and bear in mind the reasons for the company’s original failure, particularly if the DOCA proposes a trade-on of the company.
Some issues to consider:
- Have there been any changes to the management and structure of the company?
- Does the arrangement appear reasonable given the nature of the company and its business?
- How am I protected?
- Is the return sufficient to offer my ongoing support?
- What commitment is there from the company’s leader?
- Is there evidence of a fresh injection of capital?
An agreement is only as good as the people behind it. Therefore the strength of such guarantees is another factor in deciding how to cast your vote.
Macks Advisory is a firm that practices exclusively in the areas of insolvency and business reconstruction and members with queries are invited to contact Peter Macks at Macks Advisory on 08 8231 3323 or [email protected]