Simplified Liquidation

Simplified Liquidation

A simplified liquidation (also known as a simple liquidation) is one of two new formal insolvency processes introduced by the Federal Government, in the wake of the COVID-19 pandemic (the other being the Small Business Restructure). This new process has been designed to reduce the cost and time involved in completing the liquidation process.

A simplified liquidation is a type of creditors’ voluntary liquidation (CVL) and the process can be adopted after a company has been placed into a CVL where the company meets certain prescribed eligibility criteria.

When is a company eligible to apply for the simplified liquidation process?

In order for a company to be eligible, the company must:

    • Be unable to pay its debts in full within 12 months after the liquidation commences;
    • Have total liabilities of less than $1 million (not including contingent liabilities);
    • Ensure all its tax lodgements are up to date;
    • Have not used the simplified liquidation or restructuring process in the last 7 years (including current and former directors).

In addition to the above, the directors of a company must provide a declaration, within 5 business days after the liquidation commences, that they believe the eligibility criteria for the simplified liquidation process are met.

Eligibility for the process is a strict test which is critical to evaluate prior to commencing the liquidation process. We encourage you to reach out to our highly qualified team of experts to assist with this process.

How does a Simplified Liquidation differ from a Creditors Voluntary Liquidation?

Simplified Liquidations Process Flowchart

How a Simplified Liquidation commences

When a company is placed into a CVL, the liquidator can choose to adopt the simplified liquidation process if they believe the company is eligible.

In adopting the process, at least 10 business days before adopting it, the liquidator must give all members and creditors of the company notice of their intentions to do so. If, before the expiry of the 10 business days, 25% in value of creditors request the liquidator not utilise the simplified liquidation process, then it cannot be used.

If the process is not adopted within the first 20 business days of the liquidation, then it cannot be used thereafter.

What are the expected outcomes of Simplified Liquidation?

Once all company assets have been realised, investigations are completed and distributions to creditors are made, the liquidator will apply to ASIC to deregister the company. Creditors then no longer have any claim against the company.

The diagram to left illustrates what the expected process and outcomes of the simplified liquidation could look like for your company.

How a Simplified Liquidation commences

When a company is placed into a CVL, the liquidator can choose to adopt the simplified liquidation process if they believe the company is eligible.

In adopting the process, at least 10 business days before adopting it, the liquidator must give all members and creditors of the company notice of their intentions to do so. If, before the expiry of the 10 business days, 25% in value of creditors request the liquidator not utilise the simplified liquidation process, then it cannot be used.

If the process is not adopted within the first 20 business days of the liquidation, then it cannot be used thereafter.

What are the expected outcomes of Simplified Liquidation?

Once all company assets have been realised, investigations are completed and distributions to creditors are made, the liquidator will apply to ASIC to deregister the company. Creditors then no longer have any claim against the company.

The diagram below illustrates what the expected process and outcomes of the simplified liquidation could look like for your company.

Simplified Liquidations Process Flowchart

How can SV Partners help?

SV Partners work with accountants, legal advisors, financial institutions, other related professionals and their clients to achieve the best possible solution for all stakeholders involved throughout an insolvency process. Our role as Liquidators in the Simplified Liquidation process is to act as the independent third party to ensure the process is conducted appropriately and according to all relevant laws. Our highly qualified team have worked throughout various industries and have an extensive knowledge of business and the impact on stakeholders when a company faces financial distress.

For more information about the Simple Liquidation process, speak confidentially to an expert that can assess your situation by calling 1800 246 801.

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