A Deed of Company Arrangement is one of the options available to creditors of a company placed in Voluntary Administration and cannot occur independently of a Voluntary Administration.

In simple terms, a Deed of Company Arrangement is a binding agreement between the company and its creditors which sets out how creditors’ claims are to be paid (in whole or in part) or reorganised, and how the company is to be released from the claims of the creditors.

This is a flexible and pragmatic mechanism.  The precise workings will vary between Deeds, and may involve a realisation of assets, a compromise of all or some creditors’ claims, the injection of new capital, or any combination of such options.  Ultimately, it is a flexible mechanism to enable an orderly resolution of the company’s insolvency and its rehabilitation.

Where a Deed of Company Arrangement is agreed to by the creditors, the Voluntary Administrator typically becomes the Deed Administrator.  A Deed of Company Arrangement does not require Court approval however, it must be agreed upon by a majority of creditors voting in person or by proxy, at a meeting held during the Voluntary Administration.

Administrator’s powers

The powers of an Administrator of a Deed of Company Arrangement must be specified in the Deed itself.

Points to note

The passing of the resolution to accept a Deed of Company Arrangement binds all unsecured creditors, even if they did not vote in favour of the Deed.  Secured creditors, landlords and owners of property used or occupied by the company will only be bound if they vote in favour of the Deed.

If the company defaults on the terms of the Deed, the Administrator of the Deed of Company Arrangement may call a meeting of creditors to terminate the Deed and place the company into Creditors’ Voluntary Liquidation.

Where the company satisfies all of the requirements of the Deed of Company Arrangement, it will be released from the Deed and will no longer be subject to any formal insolvency administration (unless the Deed specifies that the company is to be placed into liquidation on termination of the Deed).