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What is a deed of company arrangement?
A deed of company arrangement is a binding arrangement between a company and its creditors that can come out of a voluntary administration.
It governs how the company’s affairs will be dealt with from the moment the company and its creditors sign the deed.
The deed should set out a strategy for how the company will pay its debts, as well as the process by which the strategy will be monitored.
What is the objective of a deed of company arrangement?
A deed of company arrangement aims to maximize the chances of the company continuing, or to provide a better return for creditors than would an immediate winding up of the company.
How does a deed of company arrangement come into effect?
Towards the end of the process of voluntary administration a second meeting of creditors is held to decide the future of the company.
The creditors decide at this time whether to:
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return the company to control of the directors
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accept a deed of company arrangement
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put the company into liquidation.
What is the practical effect of a deed of company arrangement?
The deed of company arrangement binds all unsecured creditors, even if they voted against the proposal.
It also binds owners of property (those who lease property to the company and secured creditors) if they voted in favour of the deed. In certain circumstances, the court can order that such creditors are bound by the deed even if they voted against it.
The deed does not prevent a creditor who holds a personal guarantee from the company’s director, or from another person taking action under a personal guarantee, to be repaid a debt that is owed to them.
In some cases, the proposed deed involves the creation of a creditors’ trust. A creditors’ trust is a separate legal arrangement used to accelerate a company’s exit from external administration.
Who monitors the deed of company arrangement?
The deed administrator ensures the company (or others who have made commitments under the deed) fulfils its commitments.
Creditors can also play a role in monitoring the deed. Any concerns about the obligations of the company (or others) is taken up with the deed administrator.
The deed administrator also lodges a detailed list of receipts and payments with the Australian Securities and Investments Commission every six months.
