When a company enters voluntary administration under Part 5.3A of the Corporations Act 2001 (Cth), the outcome is not necessarily liquidation. The administrator may recommend — and the directors or another party may propose — a Deed of Company Arrangement (DOCA): a binding agreement between the company and its creditors that allows the company to continue trading while paying creditors under agreed terms. Understanding what a DOCA means in practice is essential for any creditor facing one.
What a DOCA does
A DOCA binds all unsecured creditors, including those who voted against it, once it is passed by the required majority. It sets out the terms on which creditors will be paid — typically a defined amount over a defined period, often cents in the dollar — and in exchange releases the company from further liability for the debts covered by the deed. The DOCA fund is usually drawn from the company's ongoing operations, a contribution from directors or shareholders, or asset realisations.
How a DOCA is approved
At the second creditors' meeting, creditors vote on the DOCA. The resolution requires a majority in number and value of creditors voting. If neither test is clearly met, the chairperson (usually the administrator) has a casting vote. If the DOCA is approved, the administrator becomes the deed administrator and manages the fund distribution.
Comparing a DOCA to liquidation
The central question for every creditor is whether the DOCA returns more than liquidation would. The administrator's report — which must be provided before the second meeting — includes a comparison of expected returns under the DOCA versus liquidation. Read it carefully. The comparison depends on assumptions about asset realisations, trading performance and the recovery of preferential payments — and those assumptions may be optimistic.
In some DOCAs, the return to unsecured creditors is genuinely better than liquidation — particularly where a going-concern sale is possible or where directors are contributing personal funds. In others, the DOCA is primarily designed to preserve the company for the benefit of its owners, and creditors would do better in a liquidation that claws back preferential payments or voidable transactions.
What to do before the meeting
- Lodge your proof of debt as soon as you receive the form — you cannot vote without one
- Read the administrator's report and the DOCA deed in full, not just the summary
- Compare the DOCA return to the liquidation estimate in percentage and dollar terms
- Check whether any related-party transactions are being investigated — these can affect the liquidation return significantly
- Consider obtaining independent advice if the amount at stake justifies it
After the DOCA
If the DOCA is completed — meaning the company makes all required payments — the deed is terminated and the company is released from the covered debts. If the company defaults on the DOCA, creditors may vote to terminate it and move to liquidation. Throughout this period, your claim is preserved through your proof of debt.
This article is general information only. Insolvency matters are complex — obtain advice from a qualified insolvency practitioner or solicitor about your specific situation.
If you are a creditor in an administration and need help understanding your position, speak to Merion.