Author

Ian Innes

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What you need to know

On September 12th the High Court affirmed the flexibility of the purposes for Deeds of Company Arrangement (DOCA). In its reasoning, the Court placed very few limits on the use of what are commonly called “holding” DOCAs. It confirmed that a holding DOCA can be validly accepted by creditors to allow more time for an administrator to investigate the future options for an insolvent company.

The decision is to be welcomed by practitioners and creditors as it emphasises the breadth of the purposes for which a DOCA can be used and the primacy of the decision of creditors in determining the future of an insolvent company.

This alert summarises the background of how this issue came to be considered by the High Court, and the key aspects of the Court’s reasoning in reaching this conclusion.

How we got here

“Holding DOCA” is a term commonly used to describe a DOCA which has the function of deferring the decision of creditors on the future of a company whilst taking advantage of the moratoria a DOCA can provide. Such DOCAs may allow more time for an administrator to investigate options for the future of the company, where those options may not be readily apparent by the time of the second meeting of creditors. Typically they do not provide for an immediate distribution to creditors. However, they avoid the need for an application to the Court to extend the time frames under Part 5.3A of the Corporations Act 2001 (Cth) (Corporations Act). 

Introduction

The concept of winding up does not exclusively apply to insolvent companies. Solvent companies can also be wound up, on the initiation of the company’s directors and shareholders (for example, as part of a corporate reconstruction or to close down non-operating or redundant entities).

An overview of the two key procedures to effect the dissolution of a solvent Australian company, being Members’ Voluntary Liquidation and Deregistration, is set out below.