There are no guarantees in business and when the going gets tough, the tough get going. Insolvency might be daunting, but you’re not alone. We’re here to help you through difficult times just like we did for Colette by Colette Hayman and the daily edited (tde.), retail chains under Marquee Retail Group (MRG). This real-life success story kept their doors open and saved more than 400 jobs, underscoring the importance of skilled guidance during financial distress.
A Deed of Company Arrangement (DOCA) offers a structured pathway that not only addresses insolvency but also aids in business recovery. This guide walks you through how a DOCA works in Australia and its benefits.
Understanding DOCA: A Lifeline for Businesses
Before we explore the benefits of a DOCA for businesses, let’s first understand what it is.
A DOCA is a formal arrangement between a company and its creditors to satisfy the company’s debts. It’s designed to maximise the chances of a business continuing or, at the very least, to provide a better outcome for creditors than immediate liquidation.
How DOCA Works in Australia: The Step-by-Step Process
1. Making the Decision to Enter Voluntary Administration
The process starts when you, as a director of your company, decide to place your company into voluntary administration. Here, you’ll appoint an experienced administrator, and they will step in to steer the ship, ensuring that every move from this point is strategic and informed.
2. Take a Breather while We Craft a Path Forward
One of the most significant benefits of a DOCA for businesses is the space it provides to recover. Our administrators thoroughly evaluate your company’s financial state to develop a tailored proposal that addresses debt management and operational improvements. This proposal isn’t just about keeping the lights on—it’s a blueprint for sustainable business practices going forward.
3. Your Creditors Meet
Next, it’s time for the creditors to weigh in. A meeting is called where the future pathway of the company is put to a vote. Approval of the DOCA requires a majority by both the number of creditors and the total debt value they represent.
4. Putting Plans into Action
Once the DOCA is approved, it binds all involved. This phase is about rolling out the agreed terms, managing debts, and making operational changes that align with long-term business goals.
5. Tracking Progress
The final step goes beyond meeting the terms of the DOCA to setting your company up for ongoing success. Successful completion of a DOCA means your company can continue trading under healthier financial conditions.
Benefits of a DOCA for Businesses
A DOCA, its benefits for businesses, and its success stories reveal a path to sustainability and resilience, especially during financial challenges. Here’s the support it offers:
Keeping the Doors Open
With a DOCA, your business stays afloat and continues to operate, protecting jobs and maintaining valuable business relationships. This ongoing operation offsets your trading losses against future profits and is crucial for preserving the ecosystem of employees, suppliers, and customers who rely on your business.
Customised Solutions
Our team shows agility and flexibility in every way. Each DOCA is crafted to fit the unique needs of your company, offering tailored strategies for managing debt. This personalised approach ensures the solutions are effective, bringing the best possible outcomes and addressing financial challenges while laying a foundation for recovery and growth.
Protection from Claims
Upon entering a DOCA, your company is protected from insolvent trading claims. This gives your company room to reset, reassess, and optimise without the immediate pressure of insolvency claims, allowing you to focus on getting back on the front foot. In some cases, your company arrangements and financiers may not be affected.
Improved Returns & Returned Control
A well-structured DOCA can offer better outcomes for creditors compared to liquidation. This advantage is primarily due to the potential for ongoing trading profits, which can offer a more substantial return over time. As a director, you can regain control of your company once DOCA is finalised.
Why Consider a DOCA?
For businesses teetering on the edge of insolvency, a DOCA is a strategic option to regain stability. It provides a structured yet flexible approach to dealing with debts while preserving your core business and its inherent value.
Now that you’re well-versed with what a DOCA is, how it works and a DOCA’s benefits for businesses, speak to our experts to see if it’s the right move for your business. Reach out to Mackay Goodwin today. We act with intelligence and innovation—every decision is backed by expert advice and data-driven insights, making navigating the complex process of voluntary administration and insolvency a breeze. We also extend our support to bankruptcy, restructuring, and liquidation.
FAQs
What determines the eligibility of a business for a DOCA?
Eligibility for a DOCA depends on the financial state of the business and the assessment of your voluntary administrator. Your company must demonstrate potential for rehabilitation and the ability to offer a better outcome for creditors than outright liquidation.
How long does the DOCA process typically take?
As part of the voluntary administration process, a meeting is called within 25 or 30 business days from when you appoint us as your administrator. This meeting is where your creditors will vote based on our report. When creditors vote in favour of a company entering into a DOCA, the company must sign the deed within 15 business days following the creditors’ meeting unless the court allows a longer time. Should the company fail to sign within this timeframe, it will automatically go into liquidation.
Can creditors modify a DOCA after it has been signed?
Yes, creditors have the flexibility to propose modifications to a DOCA even after it has been signed, but any changes must receive the company’s consent. This adaptive approach allows both the company and its creditors to respond to evolving financial circumstances, ensuring the arrangement remains relevant and effective in achieving mutual benefits.
What happens if a business does not meet the terms of the DOCA?
If a business does not comply with the conditions outlined in the DOCA, creditors may choose to enforce the agreement legally, which could lead to the business being placed back into administration or proceeding to liquidation.
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