News of the day – 31st May 2021

Director Guarantees and Deeds of Company Arrangement (DoCA)

by Adam Dawson – 31st May 2021

It’s true that a director guarantee is a powerful thing for a creditor because both company assets and personal assets are on the line. But what if you put the company into voluntary administration? That’s where things get tricky because a secured creditor doesn’t necessarily trump an unsecured creditor in a DoCA.

In fact, a secured creditor can be prevented from actions that would negatively affect unsecured creditors in DoCA, so it tends to push secured creditors towards co-operating with unsecured creditors. 

That’s good news for company directors with personal guarantees because when a secured creditor is party to a DoCA, they cannot also go after you personally.

As always, the sooner you address a problem the more options you have to mitigate the damage.  It’s important to be open with all creditors about your financial position. Give them warning if you know you’re going to fall behind and explain the reason. Make part payments if you can and keep communicating with them at every step.

Often an informal arrangement can be reached if you maintain good communication with creditors.  It’s much cheaper because you don’t need lawyers and you can build some flexibility into it.  I will write more on proposals to creditors in a later post.