When a company is entering into voluntary administration, it often enters into a binding agreement with its creditors which sets out how the company’s affairs will be governed. This agreement is called a deed of company arrangement.
It aims to provide a better outcome for the company’s creditors than an immediate wind up of the company.
Who is bound by the Deed of Company Arrangement?
- All unsecured creditors;
- The owners of the property;
- Whoever leased property to the company; and
- Secured creditors.
How is a deed of company arrangement executed?
To avoid liquidation, a deed of company arrangement must be executed within relevant time frames. This is 15 days from the meeting with creditors and they have decided to enter into the deed.
What happens when a deed of company arrangement is signed?
- It binds the parties to the deed.
- It may include a release that releases the company from its debts.
How do stakeholders get paid?
The deed of company arrangement must set as a priority, to pay employee entitlements over any other unsecured creditors. The only way around this is if an employee agrees to vary their priority.
All creditor debts need to be proved before any payments can be made.
The prioritisation of which creditor gets paid first is detailed within the deed of company arrangement. The order is not set in stone and can vary, but in usually aligns to the same priority as in a liquidation.
Who manages the arrangement?
The administrator’s role in managing the deed of company arrangement is detailed within the deed. The administrator has overall responsibility for making sure that all parties carry through with their commitments.
If the creditors believe that any of the obligations of the company under the deed of company arrangement are not being fulfilled, they should promptly raise this with the administrator.
The administrator must also submit detailed records with the Australian Securities & Investments Commission (“ASIC”) every six months.