What is a Simplified Liquidation?
The formal Simplified Liquidation process was introduced by the Federal Government in the wake of the COVID-19 pandemic as a cost effective way to liquidate an insolvent company.
A Simplified Liquidation allows eligible small businesses to appoint a liquidator who is bound by less investigation, reporting and distribution requirements resulting in a more cost effective and time efficient process than a complete Creditors Voluntary Liquidation (CVL).
Which companies are eligible for a Simplified Liquidation?
- Insolvent – Be unable to pay its debts in full within 12 months after the liquidation commences.
- Liabilities – Total debts must not exceed $1m including amounts for termination of employees.
- Tax affairs – All lodgements must be up to date.
- Limitation on time period – The company and its directors (current or in the previous 12 months), must not have engaged in a Small Business Restructure or Simplified Liquidation process in the past 7 years.
Other:
- The company must commence a CVL where the event that triggers the liquidation occurs on or after 1 January 2021
- The directors must sign a declaration that the company is eligible for a Simplified Liquidation.
Overview and timeline of the Simplified Liquidation process:
A Simplified Liquidation commences as a CVL and is then adopted subject to both eligibility and the initial Simplified Liquidation adoption steps being completed.
Appointment and adoption
1. Appointment
- Director appoints liquidator under the normal CVL appointment process.
2. Director Declaration
- Director submits to the liquidator a declaration of eligibility to adopt the Simplified Liquidation process.
3. Initial Creditor Notification
- Liquidator must give all members and creditors at least 10 business days notice (notice period) of their intention to adopt the Simplified Liquidation process.
4. Adoption
- The Simplified Liquidation process is adopted by the liquidator unless 25% or greater in value of creditors during the 10 business days notice period request the liquidator not adopt the process, if not adopted, a normal CVL proceeds.
Investigation and Reporting
1. Investigation
- A limited investigation process is completed by the liquidator.
2. Reporting
- A liquidator report to creditors is issued within 3 months of the liquidator’s appointment outlining the assets and liabilities of the company, any misconduct identified, and the likelihood of a dividend to creditors.
Dividend and Finalisation
1. Dividend
- A dividend to creditors is completed (if required) following a simplified claim and adjudication process (only one first and final distribution can be completed).
2. Finalisation
- Liquidator prepares the necessary documents to lodge with the Australian Securities and Investments Commission (ASIC) finalising the liquidation and deregistering the Company
