Lawyer Ben Skinner gives his take on changes to DOCA

Photo of author

( — July 6, 2020) —

COVID-19: Voluntary Administration and Use of DOCA in Australia

The economic impact of the COVID-19 pandemic is profound. For the first time in history, the world is facing a combined economic and health crisis. While the government of Australia has been quick to introduce temporary reforms to mitigate the impact of the pandemic, directors of companies remain at risk of not being able to honour their debts.

Even though the government has introduced a temporary safe harbour defence from civil insolvent trading liability in Section 588GAAA of the Corporations Act 2001 (Cth), directors of companies nevertheless remain in a precarious position. Directors are still under a duty to adhere to all relevant legislation, including to consider the interests of all creditors if the company is verging on insolvency.

Some organisations may find that the temporary reforms and safe harbour defence are inadequate to protect them from insolvency. In these cases, the voluntary administration process supplies much-needed flexibility, which can be used to implement the necessary measures to try and avoid insolvency.

To give you a better understanding of the options available, we offer an outline below.

Voluntary Administration

The process of voluntary administration was enshrined in the Corporations Act of 1993, providing an alternative way for organisations to come to terms with their creditors. Before 1993, the only legal option of this type was a creditors’ scheme of arrangement, whose implementation was difficult and time-consuming – not to mention expensive.

The voluntary administration process gives organisations time to assess their operations and effectively gather their thoughts. During the process, there is a general reprieve on claims brought forward by creditors. It allows the appointed administrator to continue to trade the company’s business during a period of administration.

Like the safe harbour defence, voluntary administration has been created to enable the survival of an organisation. As the company goes ahead with voluntary administration, and administrators are appointed to oversee day-to-day operations, directors and stakeholders (including shareholders and secured creditors) are able to still play an active role in the process and affect the outcome through a Deed of Company Arrangement (“DOCA”).

There are two meetings of creditors that must be held during the period of voluntary administration.

  • First Meeting of Creditors
    • This must be held within eight days after the administrator has been appointed.
    • This meeting considers the possible replacement of the administrator – however, it is very rare that the creditors will decide to strike off the appointed administrator at the first instance – and to consider whether the creditors would like to appoint an inspection by way of a committee.


  • Second Meeting of Creditors
    • The second meeting of creditors is more substantial than the first. It must be held five days before, or five days after the end of the convening period.
    • This meeting will decide if the company has a future and can continue trading. Once the meeting has been convened, a report will be issued by the administrators detailing any relevant DOCA proposals, and providing an independent opinion regarding whether the creditors should accept the DOCA proposal or agree to wind up the company and apply for insolvency.


A Deed of Company Arrangement (“DOCA”) is a statutory agreement between a company and its creditors that oversees the relationship between the two parties after the end of the voluntary administration process.

The DOCA will be administered by the deed administrator. This will allow the company to continue trading, under the control of its directors, and will enable them to allocate funds to be distributed to the creditors. The creditors will receive a better than expected dividend (compared to a dividend during liquidation proceedings).

DOCAs can be viewed as complex for several reasons:

  • The potential restructuring of long-term contracts
  • Debt for equity swaps
  • Attempts to group companies and their assets
  • Takeovers or restructuring of corporate structures can be a costly and time-consuming process

To ensure the company has a future, ‘Holding DOCAs’ can be introduced.

Holding DOCAs

A Holding DOCA is designed as an interim DOCA to provide the company and its directors with time to arrange and secure a longer-term DOCA. Holding DOCAs were created as a legitimate resource that is consistent with voluntary administration.

While Holding DOCAs have been warmly received as a tool to provide extra time while a permanent restructure is considered, they may not be the best solution for certain creditors, such as employees. As a company goes through the voluntary administration process or is subject to a Holding DOCA, company employees are not able to access the Fair Entitlements Guarantee scheme (FEG).

FEG has been designed as a legislative safety net scheme for those employees whose employer is currently going through the voluntary administration process. In these uncertain times, it may be wise to consider certain creditor classes when deciding between restructuring options or to cease all operations.

If a Holding DOCA continues to be in place, a Third Meeting of Creditors will be called to decide on the future of the business.

With the COVID-19 pandemic still in full swing and the economic impact still playing out, companies would be wise to opt for a Holding DOCA if they are on the verge of becoming insolvent. Due to the ongoing crisis caused by the pandemic and the lack of working capital, companies may find it difficult to get back on their feet and restart business operations.

What’s best for my company?

Every company and situation is different. Finding the right solution in tough times depends on the circumstances your company is facing. These could include underlying business fundamentals and performance, access to working capital, supply chain issues brought on by the pandemic, and regulatory restrictions that continue to hamper business.

To survive and thrive in this challenging period and the uncertain times that are yet to come, organisations must be flexible in their approach to the wide range of solutions that are available to them.

Regardless of what the future may hold, the team at DSS Law is always on hand to help you and your company toward greater success.