As many of our readers will know from previous posts by our Sydney and Canberra Insolvency and Restructuring Lawyers, in June 2018 the High Court of Australia confirmed the validity of holdings DOCAs or deeds of company arrangement pursuant to the Corporations Act 2001.
In the case of Mighty River International Ltd v Hughes, the High Court considered what a holding DOCA is and whether it was valid.
What is a holding DOCA?
ASIC’s Regulatory Guide 82 gives the following description of a Holding DOCA:
“holding DOCAs are typically used as a means of providing more time for a voluntary administrator (or the directors or third parties) to develop proposals for restructuring or otherwise resuscitating the company, thereby avoiding the need for the voluntary administrator to seek an extension from the court of the convening period for the second creditors’ meeting under s439A. Typically, holding DOCAs do not contain any concrete provisions on the future of the company or any immediate benefits for creditors”
In essence Holding DOCAs are tools for extending the time of a moratorium period of a voluntary administration rather than using an extension of time application.
Is a holding DOCA Valid?
In a unanimous decision the High Court held that holding DOCAs are valid on amongst other things the following bases:
- As long as they comply with Part 5.3A of the Corporations Act.
- As long as they are clear and consistent with section 444A(4)(b) of the Corporations Act inn that they are specific enough for creditors to make a fully informed decision.
- As long as the general terms of the specific holding DOCAs in question furthers the objects set out in section 435A of the Corporations Act in that they assist in maximising the chances of the company’s business continuing or provide an opportunity for a better return to creditors.
How can a Holding DOCA help me with business interruption and COVID-19?
With cashflow drying up very quickly for many businesses during this COVID-19 crisis, particularly in Sydney, Canberra, Brisbane and Melbourne, a good insolvency and restructuring lawyer, working with a business and a qualified insolvency practitioner can assist business to use the Voluntary administration process and a holding DOCA to withhold certain creditor claims for an extended period of time whilst the COVID-19 crisis abates and business returns to normal.