ASIC report flags voluntary administration, DOCAs as vital restructuring tools

A new report by ASIC has shown that voluntary administrations and deeds of company arrangement remain essential restructuring tools, particularly for larger and more complex companies.

ASIC published Report 836 this week, which provides data and insights into how voluntary administrations and deeds of company arrangement (DOCAs) operate in practice and the outcomes they produce.

ASIC commissioner Kate O'Rourke said the review provides a stronger evidence base for understanding how voluntary administrations and deeds of company arrangement are operating in practice.

The review found that larger and more complex appointments were more likely to result in a DOCA. Around half of the appointments that proceeded to a second creditors’ meeting included a DOCA proposal. Of those, 87 per cent resulted in creditors accepting the proposal, representing around 44 per cent of overall voluntary administrations.

Appointments involving companies with more than $10 million in liabilities were more likely to result in an approved DOCA, with around 48.3 per cent of those appointments resulting in a DOCA.

This compared with just 15.4 per cent for appointments involving companies with $1 to $250,000 in liabilities.

Commissioner O’Rourke said the findings show DOCAs are being used for a range of commercial purposes.

"Deeds of company arrangement can support different outcomes depending on the circumstances of the company. They may allow the company’s business to continue trading, facilitate the sale of the business or assets, or provide a mechanism for creditor claims to be compromised," O’Rourke said.

"This is important because voluntary administration is intended to give an insolvent company, or as much of its business as possible, an opportunity to continue where that is viable, or otherwise to produce a better return for creditors than an immediate winding up."

Nearly half of approved DOCAs involved the company’s business continuing to trade after the deed was executed, reflecting the role the process can play in supporting business rescue where it is viable.

For smaller businesses, the review found the voluntary administration and DOCA process was less likely to result in a DOCA.

Commissioner O’Rourke noted that smaller companies may have other insolvency pathways available.

"For smaller businesses, other pathways such as small business restructuring may be more efficient and cost-effective, depending on the company’s circumstances," O’Rourke said.

‘Less than one-third of smaller appointments, with liabilities of less than $1 million, resulted in a deed of company arrangement proposal being approved. Most of these appointments resulted in liquidation with no deed of company arrangement proposal being put to creditors."