The Simplified Liquidation (SL) legislation was introduced on 1 January 2021 as an option for companies with debts of less than $1 million. The legislation modifies the obligations of a liquidator in a CVL in undertaking the liquidation process.
WHAT HAS BEEN SIMPLIFIED?
• Extent of reporting requirements to creditors
• Higher threshold and reduced recovery period for unfair preferences,
except for related parties
• Reduced requirements for reporting to ASIC
• Modified dividend requirements
• No creditor meetings
• No ability for creditors to appoint a committee of inspection
WHAT IS THE ELIGIBILITY CRITERIA?
In order to commence a SL process, a company must first enter into CVL and have the following criteria:
• Total liabilities of less than $1 million
• Company is unable to pay its debts within 12 months of the commencement of CVL
• Tax lodgements must be up to date
• Company has not undergone Small Business Restructuring (SBR)
(some exceptions) or SL in the past 7 years
• Current or former director (within 12 months) has not been a director of a company that has undergone a SBR or SL in the past 7 years unless it began less than 20 business days before the process commenced
In order to commence a SL the directors of a company will need to declare that the company is eligible.
HOW IS THE SL PROCESS ADOPTED?
Liquidator has 20 business days to adopt the SL process
• May be rejected by 25% of unrelated creditors in value
• Is subject to the liquidator’s ongoing determination of eligibility, including where instances of fraud or dishonesty by the company or its directors are identified
Despite its title, the SL is not without its complexities. The above is only short summary of the process and therefore professional guidance should be sought as to the full extent of the issues to be addressed.