A Deed of Company Arrangement is similar to a Part X done on behalf of an individual debtor. It is whereby the debtor appoints an Administrator (registered Trustee or Liquidator) and places his company for a certain period of time under the control of that Administrator, while he prepares a proposal to be put forward to a meeting of creditors where if accepted the company is then handed back to the directors and they are to ensure that they honour the terms and conditions of the proposal put forward.
Day 1: Appointment of Administrator
Day 5: Administrator calls the first meeting of creditors, which we generally refer to as a “waste of time meeting”, wherein he usually states to creditors that he has been appointed but has not had sufficient time to investigate the affairs of the company, but that he will do so and that he will call a meeting generally in 28 days after that time.
The Administrator calls a second meeting of creditors, at which time he will give his view that
a) the company has little or no chance of success and therefore should be liquidated or
b) the directors have put forward a D.O.C.A (Deed of Company Arrangement Proposal), whereby they are offering to repay creditors x cents in the dollar, all assets either as a lump sum or over a period of time in full satisfaction of the debt.
To have a Deed of Company Arrangement accepted, there is a requirement that there is a simple majority in number and a simple majority in dollar value of creditors with voting rights agreeing to the proposal. It is interesting to note, that if the directors of the company are owed money by the company, they may also vote.
In the event of a stalemate, namely where i.e. the numeric number of creditors vote in favour of the proposal but the dollar value may vote against the proposal, the Chairperson (usually the Administrator) has the casting vote.
If the proposal is accepted, the Administrator hands back the company to the directors and it is then the directors responsibility to pay whatever amounts agreed on to the Administrator for on-payment to the creditors. This can often be a very viable way of a company continuing to operate, however consideration must be given to the types of creditors involved as some may elect not to deal again with the debtors. Also in some cases where creditors have personal guarantees of the directors, they may not be bound by the Deed, which would allow them to still attack personally the directors.
For an assessment on whether or not Liquidation or Deed of Company Arrangement would be beneficial to you, please contact Q.A.S. for an obligation free consultation.