Wexted Advisors previously published an information sheet on Voluntary Administrations (VA) and Deed of Company Arrangement (DOCA) as an effective restructuring tool. We now revisit the topic in the context of the uncertainty brought on by the COVID-19 pandemic and the July 2021 Sydney lockdowns.
Steps to undertake before considering any form of external administration
Before considering external administration, Directors should:
- Review NSW and Federal Government website for financial support and assistance packages;
- Consider any additional equity raise options in your business from existing or new investors;
- Hold discussions with your key stakeholders, financier, landlord, ATO and key suppliers; and
- Consider other cost saving initiatives.
Challenges raised by COVID-19
There are a number of challenges which continue to develop quickly as a result of COVID-19 and the current lockdowns. These include:
- Restrictions on trading resulting in immediate loss of revenue while expenses continue (i.e. rent, wages etc);
- Uncertainty and lack of continuing government relief measures;
- Uncertainty on timing of current and any future lockdowns, and ongoing impact on cashflow and business; and
- What market conditions will look like going forward and when will revenue return to pre-COVID-19 levels.
What is a Holding DOCA?
Voluntary Administrator have up to 25 business days to convene the second meeting of creditors and form an opinion as to whether it is in creditors’ interests for the company to enter a DOCA, for the administration to end, or for the company to be wound up.
A DOCA is a binding agreement between a company and all its creditors, excluding except secured creditors, and usually proposed by the Directors, key stakeholders or an interested party.
The timeframe of the Administration process can be extended by seeking creditors’ approval of a Holding DOCA and avoids seeking an extension of the convening period from the Court.
Benefits of a Holding DOCA
Time |
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Moratorium on claims |
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Flexibility |
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Resolution of claims |
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Are Holding DOCAs valid?
Yes. The High Court in Mighty River International Limited v Hughes and anor (as deed administrators of Mesa Minerals Ltd) found that Holding DOCAs were consistent with the objective of Pt 5.3A of the Corporations Act 2001, given that their objective is to maximise the chance of the company’s survival or otherwise provide a better return to creditors than would result from a liquidation.
Separately, ASIC’s Regulatory Guide 82 recognises the use of Holding DOCAs, and provides that they should not be open-ended, and should include a mechanism for interim reporting.
What does the VA and Holding DOCA timeline look like
Appoint Administrator |
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1st meeting of creditors |
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VA report and investigations |
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2nd meeting of creditors where future decided |
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Holding DOCA, Liquidation or end VA |
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Subsequent DOCA proposed |
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Summary
The current lockdowns due to COVID-19 are severally impacting on sales and business cashflows. Notwithstanding, the recent State and Federal Government Financial Support, this is an uncertain and challenging time for business owners and directors.
While Directors seek financial and legal advice and continue to explore all options available to them to ensure their business survives COVID-19 and the current lockdowns, we provide the Holding DOCA as an option for consideration. The Holding DOCA provides the critical time needed for Directors to work with stakeholders under a formal framework, to maximise the chances of the company’s survival during these difficult and unprecedented times.
Wexted Advisors are Chartered Accountants who provide both informal restructuring (safe harbour, small business restructuring) and formal restructuring (Voluntary Administrations, DOCAs and Liquidations). We work with Directors, and their trusted advisors, to assess the financial position of the Company and provide independent advice to maximise the chances of business survival.
For further information on our credentials and experience please visit our website Wexted Advisors Credentials or contact us below.
Please feel free to get in contact with either Joe Hayes, Andrew McCabe or Raj Goyal on (02) 9210 1700.
Click here to download the Holding DOCAs – Response to COVID-19 and current lockdowns brochure.