This article looks at a few of the highlights amongst the amendments to voluntary administrations, deeds of company arrangements (DOCA) and liquidations following administration. We have not addressed the many behind-the-scenes technical amendments that affect the practitioner more than the creditors and other parties preferring to concentrate on those amendments that creditors will notice when involved in these types of external administrations.
Four major amendments will affect creditors:
- The first meeting of creditors is to be held within 8 business days of the appointment (up from 5), with 5 business days notice (up from 3). This still means that the initial advice will have to be issued a day or two after the appointment, but creditors will have more time to arrange to attend first meetings.
- The second meeting of creditors must be held in the period between 5 business days before and 5 business days after the end of the convening period. The convening period will be set at 20 business days after the appointment, this being about a one week extension from the current timing of 21 days. Given the amendments to the process to start CVLs (refer to last month's newsletter), the number of administrations commenced simply to put companies into liquidation should decrease. In theory at least, an increased percentage of administrations should lead to deed proposals and these usually require more than the current 21 days to prepare. We will have to wait and see whether this eventuates.
- Administrators will have to give a Declaration of Relevant Relationships they have had with the company, its officers etc over the previous 2 years; and a Declaration of Indemnities that have been received for fees and outlays. We are already disclosing this information in our first advice to creditors and tabling that advice containing the declarations at the first meeting of creditors, so there is nothing new as far as Worrells is concerned.
- The period for secured creditors to exercise their security has been extended from 10 business days to 13 business days.
There are two relevant changes:
- The deed must include the employee priorities as set out in section 556, section 560 and section 561 of the Corporations Act, unless employees agree otherwise. Worrells have been including the section 556 priorities in our standard deeds for some years.
- Creditors will not be able to terminate a DOCA unless there is a breach and that breach has not been rectified. Historically it was possible for creditors to vote for the termination of the deed at any time and theoretically for any purpose regardless of whether the deed had been breached or not. Clearly this is a sensible reform.
Liquidations following administration
There are five amendments of interest:
- Creditors will be able to choose an alternate liquidator when the company is wound up at the second meeting or after a breach of the deed. We are yet to see the wording of these sections and how they will apply to automatic terminations - e.g. the DOCA not being executed within the 21 days.
- The cost of any outstanding winding up application is to receive priority in the winding up if the winding up following an administration that started when the application was pending.
- A liquidator appointed after a VA or a DOCA is terminated may request a Report as to Affairs from the administrator, deed administrator or company officer for the period in which they were appointed.
- Uncommercial transactions entered into during a voluntary administration or under a DOCA will be voidable by the liquidator.
- An annual report will be able to be lodged with ASIC instead of calling an annual meeting. It is expected that this approach will be followed in most cases.