Diamonds in the Rough: Using Deeds of Company Arrangements

Corporate Finance & Restructuring

August 21, 2018

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Diamonds can be found in the most obscure and hard to find places. Failing businesses, whilst often raising a myriad of red flags, can also on occasion be a gem worth investing in.

We continue our ‘Diamonds in the rough’ series with our second article that looks at some of the key challenges to be aware of when considering the deed of company arrangement, or DOCA, process. When understood and used appropriately, the DOCA process can provide an innovative mechanism for the acquisition of distressed businesses.

What is it?

Buyers can use the DOCA process to prise out the valuable pieces of a business embedded in an insolvency process. Several iconic, but financially challenged Australian businesses have recently been saved using a DOCA.

In practical terms, a DOCA is a contract between a company in administration, the administrator and an interested party which allows the business, and the company’s assets, to be extracted by the interested party, normally in return for a sum of money which should at least, in part, meet creditor claims. DOCAs also:

  • Require creditor approval and are formally voted upon by creditors at a meeting convened by the administrator.
  • Are only available in circumstances where an insolvent company has been placed into voluntary administration.
  • Are one of three main outcomes of the voluntary administration process, with the other being returning the company to the directors or winding up the company through the appointment of a liquidator.

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