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Simplified Liquidation

19 Dec 2023 2 min read

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

  1. Liquidator prepares the necessary documents to lodge with the Australian Securities and Investments Commission (ASIC) finalising the liquidation and deregistering the Company
Experts / Authors
  • Matt Byrnes
    Matt Byrnes Matt Byrnes is Grant Thornton’s National Head of Restructuring Advisory. He has particular expertise in assisting businesses in receivership, liquidation and voluntary administration. View Profile