When You Should Consider Administration and a Deed of Company Arrangement

For companies whose businesses have no hopes of revival and no ability to put any offer to creditors, liquidation is the only option.

For companies with businesses, however, who are struggling but do not fit those two criteria, there is always the possibility of putting the company into administration and entering into an agreement (a Deed of Company Arrangement or “DOCA”) with the creditors. This can result in the company finances being finalised in as painless way as possible for the creditors and directors, or allow it to continue trading if it’s going through some restructuring.

This process is expensive, however, and it is much more successful if it is carried out as soon as you realise the need for it, rather than waiting until one of the creditors is about to wind your company up.

The issues to consider are as follows:

  • Is there a genuinely viable business being run by the company that can continue to trade successfully after restructuring some of those debts or assets?
  • Is there funding available to an administrator to continue trading the business until the creditors get to vote on the DOCA?
  • If there is not, should you consider an urgent sale process with the administrator after the appointment and propose the DOCA afterwards to reduce the level of funding required?
  • Could the business trade under a license agreement with another company until such time as the DOCA or sale process was completed?
  • Are creditors likely to vote in favour of such a DOCA in any event (you need 50% of the value of your creditors and in number present at the meeting to vote in favour for the DOCA to be accepted)?
  • Would it be simpler and easier to put the company into liquidation and look to try and buy the business off the liquidator?
  • Do you just wish to come up with a final deal with the creditors of the company to bring any further action against you or the company to an end? (Note this will only work if you have either not given guarantees to creditors or you are able to pay those guaranteed creditors the balance of their debt in any event, this of course includes the bank); and
  • Is there a source of funding or a third party who can provide a one of payment to creditors to bring this matter to an end?

The answers to all these questions will determine whether or not administration and a DOCA proposal is worth exploring.

We stress that the success of any DOCA is much higher if you take early advice and action. We have seen any number of potentially good DOCAs and restructures fall over due to the fact that clients after taking expert advice decide to wait and see what would happen and then 6 to 8 months later when the financial situation is far worse, try and prepare such a DOCA proposal. Generally, in those circumstances, this simply won’t work.

If you wish to discuss any such proposal or take out advice in relation to your company’s financials or structure in more detail, please contact Andrew Lambros .

Authors

Andrew Lambros is a Director at Bennett & Philp Lawyers

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