The COVID-19 pandemic hit businesses hard. The Australian government introduced several measures to support struggling companies, and Simplified Liquidation was among those efforts.
Simplified Liquidation (also known as Simple Liquidation) is a new tool that makes liquidation more accessible for struggling companies. It’s a last resort, but it improves outcomes for everyone, and it’s an excellent tool for companies facing liquidation.
At Business Savers, we’re experts in the Simplified Liquidation process, and we can provide expert advice to help you make the most of your situation.
Simplified Liquidation is a streamlined version of Creditors’ Voluntary Liquidation (CVL). It was introduced in the wake of COVID-19 as a time and cost-effective way to wind up businesses with liabilities of less than $1 million.
Like the name suggests, Simplified Liquidation is a simple process with a shortened time frame. This helps to control the expenses involved with winding up a business. Reducing the time and cost means creditors receive better returns, and it helps to manage the impact on directors, employees and other stakeholders.
Simplified Liquidation is subject to strict eligibility requirements. In order to be eligible, a company must:
- Be in a Creditors’ Voluntary Liquidation that was triggered on or after 1 January 2021
- Have liabilities of less than $1 million (on the day the Liquidator is appointed)
- Be unable to pay its debts in full within 12 months
- Not have used Simplified Liquidation or Small Business Restructuring in the last 7 years (this applies to current and former directors)
- Be up to date with lodgements to the ATO
The directors are also required to issue a declaration within 5 business days of the Liquidation commencing, stating that they believe the company is eligible for Simplified Liquidation.
You can learn more about the eligibility criteria here. We recommend talking to a professional adviser to find out if your company is eligible.
When an eligible company is placed into Creditors’ Voluntary Liquidation, the Liquidator can choose to adopt Simplified Liquidation.
The Liquidator must opt for Simplified Liquidation within 20 business days of their appointment. At least 10 days before adopting Simplified Liquidation, the Liquidator is required to provide written notice to each member and creditor that includes:
- A statement that they believe the company is eligible for the process
- An outline of the process
- A statement outlining that the process will not be adopted if 25% or more of the creditors (in value) decide not to utilise Simplified Liquidation
- Information on how creditors can provide direction that they don’t want to use Simplified Liquidation
The Liquidator must terminate the Simplified Liquidation process if:
- The company is no longer eligible
- It is believed that the company or directors have taken part in fraudulent or dishonest activity, and that activity is likely to have a negative impact on creditors
If Simplified Liquidation is accepted by the creditors, the liquidation process begins immediately. If the creditors reject Simplified Liquidation, the Creditors’ Voluntary Liquidation will continue as normal.
Simplified Liquidation and Creditors’ Voluntary Liquidation are two very similar tools. They both involve gathering and selling company assets, investigating financial affairs and issuing a dividend to creditors.
However, the two processes differ in four key areas:
- Creditor meetings. Creditors have a right to determine how Liquidations are handled. In a CVL, this is done through creditor meetings. In Simplified Liquidation, creditors make decisions through a proposal process that doesn’t require in-person meetings. This significantly reduces costs and speeds up decision making.
- Reduced reporting. ASIC has reduced the number of reports required for Simplified Liquidation. This saves time and minimises the burden on the Liquidator and Directors.
- Fewer clawbacks. Liquidators are empowered to “clawback” certain transactions that are unfair towards creditors. In Simple Liquidation, there are fewer circumstances where Liquidators can reverse these transactions.
- Time and expense. With reduced communication and reporting requirements, Simplified Liquidation is often much more cost-effective than CVL. This means it’s quicker and easier to reach an outcome, which further reduces the Liquidator’s expenses.
Once the process has been adopted, Simplified Liquidation follows the same process as CVL. The Liquidator gathers and sells company assets, investigates the company’s financial affairs, and then distributes money to creditors.
After that work is complete, the Liquidator applies to ASIC to deregister the business, and the company ceases to exist.
Find Out if You’re Eligible for Simplified Liquidation with Business Savers
Winding up a business can be a stressful and time consuming task. If you’re eligible, opting for Simplified Liquidation reduces the time involved and can help improve outcomes for everyone.
Simplified Liquidation is subject to strict eligibility requirements. To find out whether it’s the right option for your company, get in touch with Business Savers today.
Business Savers are expert Liquidators that have helped hundreds of companies navigate the liquidation process. We tailor our services to find the best options and solutions possible. When you work with us, our team will be with you throughout the process, so you’ll have the support you need to manage any type of financial difficulties.
You can contact us online to book an appointment, or phone us for a confidential consultation.