A creditor of a company subject to a Deed of Company Arrangement (DOCA) was recently successful in seeking termination of the DOCA by the court. As a result of the company's non-compliance with the DOCA, the majority of creditors resolved to extend the term of the DOCA and increase the amount to be paid by the company. The applicant creditor alleged that the DOCA should be terminated because the company had failed to make payment in accordance with it, and the variation had not taken effect.
The Court made an order terminating the DOCA on the grounds that:
- There is no valid variation of a DOCA unless its administrator consents to it. In this case the deed administrator had indicated that he did not consent to the variation of the DOCA and that he did not oppose its termination
- The creditors' resolution contemplated that the DOCA would be varied by a deed that was to be effective from the date the last person signed it. The last person to sign the deed was to be the administrator, but he never did so. Therefore, the deed never came into effect
- As four and a half years had passed since the DOCA was originally entered into, and there was no evidence to suggest that the company could ever comply with it, the DOCA could not be given effect without injustice or undue delay
- The DOCA contained discriminatory provisions such that creditors who had obtained guarantees from the company's director were to be paid double their debt.
See court decision here.