The Deed of Company Arrangement (DOCA) offers a vital lifeline for a struggling sports club, ensuring financial stability and safeguarding their future. For teams facing the daunting prospect of liquidation, a DOCA provides a structured path to recovery.
This article explores the significance of a DOCA for sports clubs, particularly rugby teams, outlines the steps involved in assembling a DOCA, and examines its application in the case of the Super Rugby side Melbourne Rebels.
Overcoming Financial Challenges in Sports Clubs with a DOCA
Sports clubs, like any other business, face financial challenges that can threaten their operations. These challenges can range from poor management decisions to unexpected expenses and declining revenue.The stakes are even higher for a sporting team mainly due to their reliance on sponsorships, ticket sales, and merchandise. When financial distress becomes overwhelming, a DOCA can offer a lifeline by allowing the club to restructure its debts and avoid liquidation.
A DOCA is a formal agreement between a company and its creditors, detailing how the company’s debts will be managed. It aims to maximise the chances of the company’s survival and provide a better return to creditors than immediate liquidation. For sports clubs, a DOCA can mean the difference between maintaining operations and shutting the doors.
Steps to Create a DOCA
Assembling a DOCA involves several critical steps.
Administrator Named
The process begins with the appointment of an external administrator, usually a registered insolvency practitioner. The administrator takes control of the club’s operations and conducts an independent review of its financial position.
Assessment and Proposal
The administrator assesses the club’s financial situation and liaises with creditors to understand their concerns. Based on this assessment, the administrator drafts a DOCA proposal, outlining how the club intends to repay its debts.
Creditor Meetings
The administrator convenes meetings with creditors to discuss the DOCA proposal. Creditors have the opportunity to ask questions and suggest amendments. The proposal must be approved by a majority of creditors, both in number and value.
Approval and Implementation
Once approved, the DOCA becomes legally binding. The club must adhere to the terms set out in the agreement, which may include scheduled repayments, asset sales, or restructuring efforts. The administrator oversees the implementation of the DOCA to ensure compliance.
Ongoing Monitoring
The club’s progress is monitored regularly to ensure it remains on track. If the club successfully fulfills its obligations under the DOCA, it emerges from administration and continues its operations.
Melbourne Rebels’ Fight for Survival
Super Rugby side Melbourne Rebels faced significant financial difficulties almost from their inception in 2010 as the then-SANZAR Super 14’s 15th franchise team. These include Australian Rugby Union restrictions on player and officials’ signings, signing over ownership shares to the Victorian Rugby Union and later sale to Imperium, and being very close to elimination from Super Rugby competition in 2017. Perth XV Western Force became the team that was cut, but eventually came back into action in 2022.
The Rebels were on the brink of collapse due to mounting debts and poor financial management, filing for voluntary administration on 22 January 2024, with $23.1m in debt and just $17,300 in bank accounts, plus a small pile of assets. The bulk of that debt is marked for the Australian Taxation Office (ATO), at $11.6m.
Evaluations by administrators from PwC also hinted at investigating claims from Rugby Australia about the XV having been actually insolvent as far back as 2018. Financial records revealed that the team suffered losses of at least $5m a year for the past three years.
However, instead of succumbing to liquidation, the Rebels opted for a DOCA, which may have proved to be a turning point in their fortunes.
A private investment group led by Leigh Clifford presented a DOCA plan on 3 May 2024, with creditors approving of the measure upon recommendation by the administrators. The plan calls for employees to have full entitlements due them while unsecured creditors may have up to $0.15 on the dollar. The consortium is also aiming to raise as much as $30m to keep the team active for the next five years, including transferring its home field from AAMI Park to a new place in Tarneit under a partnership with Western Melbourne Group (WMG).
The problem though is that Rugby Australia (RA) and the ATO opposed the DOCA. The DOCA recommended that the ATO release the club directors from the tax liability so creditors can receive $0.30 per dollar.
RA’s opposition stemmed from several issues, including the identities of all the investment group’s members remaining unknown, no firm agreements in place between the group and WMG over Tarneit, and a key provision in the DOCA stating it must give the Super Rugby licence to the investment group while shouldering the club’s wages until the end of the 2024 season. However, Rugby Australia CEO Phil Waugh met the Rebels players and management on 30 May 2024 and declared that they will not be part of the 2025 season.
Sources hinted that if RA and the ATO did not accept the DOCA, the Rebels’ former directors may sue RA to claim $8.1m in supposed arrears and PAYG liabilities. They will also be given 60 days to begin litigation on securing the licence given safeguards.
Benefits of Implementing a DOCA for Sports Clubs
Implementing a DOCA can offer numerous benefits for struggling sports clubs.
Staving off Liquidation
The primary advantage is the avoidance of liquidation, allowing the club to continue its operations and fulfill its commitments to players, fans, and stakeholders.
Debt Management
A DOCA provides a structured approach to managing debts, often resulting in more favorable terms than immediate liquidation.
Operational Restructuring
It offers an opportunity to overhaul the club’s operations, implement cost-cutting measures, and improve revenue streams.
Stakeholder Confidence
Successfully implementing a DOCA can restore confidence among stakeholders, including sponsors, investors, and fans.
Long-Term Viability
By addressing the root causes of financial distress, a DOCA can set the foundation for long-term financial stability and success.
Conclusion
For sports clubs facing financial difficulties, DOCAs can be a vital tool in ensuring their survival. By understanding its process and benefits, other sports clubs can navigate financial challenges and emerge stronger than before. The Melbourne Rebels, while still having some kinks claimed by certain quarters, exemplifies how a well-structured DOCA can help a struggling club manage its debts, restructure operations, and regain stability.
DISCLAIMER: This article is for informational purposes only and does not replace official business advice. AVANTE PARTNERS has no relationships with any sports club or governing body mentioned. Please consult a corporate law solicitor and financial advisor.
