Simplified liquidation

·

04 Nov 2020

Simplified liquidation process outlined

READ TIME

3 min

Doing away with the ‘one-size-fits all’ approach in the SME space.


On 24 September 2020, the Government proposed legislation to implement a simplified liquidation process. Its intention is to supplement the current ‘one–size-fits-all’ liquidation regime with a streamlined and therefore more cost-efficient pathway for less complex liquidations for small business.

Should the company meet certain eligibility criteria, the liquidator may adopt the simplified liquidation process rather than the existing approach.

The currently announced criteria are:

  • the company has passed, a special resolution that the company be wound up voluntarily;

  • the directors have given the liquidator a report concerning the company’s affairs and a declaration that the company will be eligible for the simplified liquidation process;

  • the company is insolvent;

  • the company’s total liabilities do not exceed the amount to be prescribed in the regulations;

  • no director has been a director of a company that has previously used the simplified liquidation process or a debt restructuring process; and

  • the company’s tax lodgements are up to date.


Upon electing to adopt the process, the liquidator will notify creditors who will then have the opportunity to opt-out of the simplified liquidation process.

Adopting the simplified liquidation process instead of a creditors’ voluntary liquidation does not create a new liquidation process, or disturb the framework established by the Corporations Act 2001 and the relevant subordinate regulations and instruments. Rather, the simplified liquidation process preserves and applies most of the existing framework and adopts small changes for a more fit-for-purpose and efficient process.

In particular, the changes to the process under a simplified liquidation are:

  • Reduced investigation and reporting requirements. The requirement to provide a report on offences to the Australian Securities and Investments Commission (ASIC) is removed.



  • Reduced meetings. The obligation for liquidators to convene meetings is removed.

  • Removes Committees of Inspections. Creditors may no longer appoint a committee of inspection, which is currently used to advise and assist the external administrator and can approve and request certain aspects of the liquidation process.



  • No Reviewing Liquidators. Creditors may no longer appoint a reviewing liquidator to review the incumbent’s remuneration.

  • Fewer voidable transactions. It is proposed that the liquidator cannot clawback unfair preference payments from creditors not related to the company.

  • Simplified dividend process. The process of creditors lodging a claim (proof of debt) and dividend payment will be simplified.


It may be argued that the current process is excessive for the relatively simple affairs of many small business insolvencies in Australia It is intended that The simplified liquidation process result in a cheaper and more efficient liquidation process that is better tailored to small business. addressing a shortcoming in Australia’s insolvency regime.

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