A deed of company arrangement is a legal agreement of compromise by which creditors allow directors to regain control of a company that has been in voluntary administration.
The reason creditors agree to a deed of company arrangement is that they believe it will deliver them a higher return than if they put the company into liquidation.
However, the directors aren’t given full control of the company; instead, they have to follow the conditions laid out in the deed of company arrangement. The deed of company arrangement will state:
- How much money the company will repay to creditors
- Which assets it will use to repay creditors
- How regularly it will make repayments
- How large these instalments will be
- The order in which creditors will be paid
- The potential consequences of violating the deed of company arrangement
A deed of company arrangement is overseen by a deed administrator. The deed administrator is usually the same person who acted as voluntary administrator.
If creditors vote for a deed of company arrangement, the company must sign it within 15 business days – otherwise, the company will be put into liquidation. Once a deed of company arrangement is signed, it is binding on:
- The company
- The voluntary administrator
- The directors
- Secured creditors who voted in favour of the deed of company arrangement
- All unsecured creditors (even if they voted against the deed of company arrangement)
During a deed of company arrangement, directors must notify the deed administrator if they believe a violation has occurred or is likely to occur.