of administrations ended in a deed
median dividend to unsecured creditors under a wholly effectuated deed, 21.3 cents on average
of the deed proposals actually put to a vote were approved
A deed of company arrangement (DOCA) is a binding agreement between a company and its creditors that sets out how the company’s debts will be dealt with. Creditors approve it by a vote. Once it is signed it binds every unsecured creditor whose claim arose before the deed, including creditors who voted against it and creditors who did not vote at all.
The purpose of the deed is to produce a better outcome than an immediate liquidation. That can mean keeping the business trading and paying creditors over time, or it can mean an orderly realisation of the business that returns more than a shutdown.
A deed advocate acts for the company’s directors, its shareholders or an incoming investor, to design, fund, present and complete a deed proposal. The role exists because the administrator cannot do it. The administrator is independent, must act fairly and impartially, and forms their own opinion for creditors. Somebody still has to build the proposal they will assess.
Olvera advisors is an experienced deed advocate whose role is to negotiate the deed on your behalf.
Three situations account for most successful deeds. They look different from the outside, and they are funded and structured differently.
This is the standard deed. The trading business is sound, or would be sound without the debt it is carrying. A tax liability, a bad contract, a lost customer or a legacy dispute has created a debt the company cannot service, and enforcement is closing in.
The deed compromises the debt on terms creditors accept, and the company keeps operating. Control of the company returns to the directors.
Less well known, where a business or contract is in wind down, or a significant damages claim has been received and the liquidation costs would erode the return to creditors.
A deed can deliver an orderly wind-down instead. Work in progress is completed, assets are realised in a controlled way rather than at auction, employees are paid their entitlements in an orderly fashion, and creditors receive a defined return on a defined date. It is faster, more certain, and usually returns more.
The third group are acquirers. A buyer can usually purchase assets out of an administration or a liquidation without a deed at all, as an asset sale. Purchasers use a deed when they need the company itself, not just its assets, because three things sit inside the company and do not transfer with an asset sale, licences, customer contracts, tax losses.
This is the last decision you make with full control of the company, and it shapes everything after it, who investigates, how quickly, and how well they understand your industry. From the moment of appointment your powers as a director are suspended and the administrator runs the business, at their personal financial.
Directors’ meeting to resolve that the company is, or is likely to become, insolvent, and to appoint an administrator.
The administrator you appoint writes the report that decides the vote. Their view of your sector is the single most useful thing you can identify.
It changes how the administrator plans the convening period, and it is the difference between them testing your proposal and merely receiving it.
The administrator has 20 business days to form a view. Time spent reconstructing your records is time not spent on assessing your proposal.
The first meeting is about the administrator and the committee, not about your deed. In practice it is still your deadline. A draft proposal delivered at or before that meeting sets the expectations for creditors at the first meeting. We also recommend you attend the first meeting to acknowledge the failure. Delivered later or failing to attend, and negative positions become locked in.
First creditors’ meeting, held within eight business days of appointment, to consider an alternate administrator and a committee of creditors.
63% of approved deeds carried a third-party contribution.
Losses, forgiven debt and the structure of the deed all interact. Decisions made in the drafting cannot usually be undone once creditors have voted.
Related parties, employees, secured creditors and trade creditors all sit differently. The commercial reason for any difference belongs in the proposal, recorded at the time you decide it.
This is the period in which the outcome is actually decided. Administrators recommended approval of 95% of the proposals put to a vote, and creditors followed a positive recommendation 89% of the time. Nothing you say at the meeting will carry the weight of what happens before the meeting.
Directors’ meeting to resolve that the company is, or is likely to become, insolvent, and to appoint an administrator.
Answer the administrator’s questions in writing and quickly. A positive recommendation is worth more than any other single thing you can secure.
One creditor can decide the value test alone. Where that is the ATO, bring lodgements up to date before the conversation starts.
Amending the draft to meet a real concern is how proposals get approved. Defending the original draft is how they get voted down.
The deed is approved only if two majorities are reached among the creditors who actually vote: more than 50% by number, and more than 50% of the debts by value at the meeting. Creditors who do not vote count on neither side, so turnout decides the arithmetic as much as sentiment does.
Directors’ meeting to resolve that the company is, or is likely to become, insolvent, and to appoint an administrator.
Employees and small trade creditors decide the number test. A bank or the ATO, or the related entity can decide the value test on its own.
A supportive creditor who does not lodge a proof and a proxy is worth nothing to either test.
The chair decides which claims are admitted and at what value, and those decisions can decide the vote. Give the administrator the evidence early.
Creditors approved a proposal. Now it has to become a document. The day that document is signed, the voluntary administration ends, and so do two things directors assume will last, the freeze on suppliers cancelling contracts, and the protection against creditors enforcing personal guarantees.
Directors’ meeting to resolve that the company is, or is likely to become, insolvent, and to appoint an administrator.
A term that was never put to creditors cannot simply appear in the deed. Variations have their own process and their own limits.
Guarantee relief is negotiated with the creditor holding the guarantee, in writing. Regulatory approvals belong in the deed as conditions, not assumptions.
A deed releases the company. It does not release directors, guarantors or related parties, and clauses that attempt it have been held void and, in one case, brought the whole deed down.
The accounting for a deed is not intuitive, and the first set of post-deed accounts is where mistakes get locked in. The compromise of debt, the deed fund and any third-party contribution each have to be recorded properly, and the audit and lodgement position needs to be established closely in the deed rather than assumed.
Directors’ meeting to resolve that the company is, or is likely to become, insolvent, and to appoint an administrator.
Where a modification is not substantial, the gain or loss goes to profit or loss immediately. It is not spread over the remaining life of the debt.
Relief from lodging accounts is available in defined circumstances. Work out what applies to your company rather than assuming the obligation has paused.
It matters for the deed, for the director penalty regime and to ensure the deed remains viable.
Directors get control back in around 76% of deeds, and about half of deed companies keep trading. That means the insolvent trading duty applies to you again from the day the deed is signed. The deed period is a period of performance, not of protection.
Directors’ meeting to resolve that the company is, or is likely to become, insolvent, and to appoint an administrator.
Keep employee entitlements paid when they fall due and tax lodgements current. Have your post deed models ready and verified and your funding in place.
A material breach by someone bound by the deed is a ground for terminating it, and funding is what most failed deeds are terminated on.
Deeds using one ran to a median of 19 days against 293. If the company needs to be off the external administration record to trade, that is the tool. It needs to be in the proposal.
An administrator once appointed works on behalf of creditors. A deed advocate works on behalf of the deed proposer.
Olvera Advisors is one of the country's leading firms specialising in deed advocacy to ensure the deed proposal being put forward maximises the return to stakeholders, maintains value of the business and the success of your proposal to keep you in control.
Download Olvera’s deed of company arrangement (DOCA) guide for an informative overview of our offerings and industry experience.
Meet our DOCA advisor, Damien Hodgkinson.
Damien Hodgkinson leads Olvera Advisors Hospitality Advisory Practice with over 30 years of experience in the sector.
He is currently a Director of Best Restaurants Australia and the founder of Linchpin Hospitality, working with lenders and operators to maintain and reestablish control after the administration of Public Lifestyle Management.
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