Simplified Liquidation

The Australian Government introduced two significant new insolvency solutions following the enactment of the Corporations Amendment (Corporate Insolvency Reforms) Act 2020 (Cth), as part of the federal government’s JobMaker Plan in response to the COVID-19 pandemic. The first of these solutions is the Simplified Liquidation Process (SLP) which allows eligible small companies to participate in a faster and more financially commercial liquidation process.

The benefits of the process, compared to traditional liquidation, include:

1. Reduced costs;
2. Shortened turnaround times; and
3. Increased returns/dividends to creditors (in theory).

The SLP does not replace the existing insolvency framework, but rather applies the existing framework and incorporates some slight changes to create a more efficient and pragmatic pathway. These efficiencies are achieved by streamlining the following:

1. Reducing the circumstances where unfair preference payments from creditors unrelated to the company can be sought;
2. Only requiring liquidators to report to ASIC regarding potential misconduct in circumstances where there are reasonable grounds for doing so;
3. Removing creditor meeting requirements and committees of inspection;
4. Simplifying the dividend and proof of debt processes; and
5. Using more flexible means of technological communication for the purposes of communicating and voting.

The simplified liquidation process can only be accessed if the following eligibility criteria are met:

1. The directors/members resolve to wind up the company;
2. The directors provide a report to the liquidator concerning the company’s affairs, and provide a declaration stating that the company would be eligible for the SLP;
3. The company is insolvent;
4. The total liabilities of the company must be less than $1,000,000.00 (including contingent liabilities);
5. The company’s tax lodgements must be up to date, having lodged all returns, notices, statements, applications and any other documents required under the relevant taxation laws;
6. The process can only be used once in a seven year period, by both the company and its directors including former directors who resigned in the 12 months prior;

The SLP process cannot be adopted if 20 business days since the relevant triggering event which brought the company into liquidation have passed, or if 25% of the value of creditors (not including related entity creditors) direct the liquidator in writing not to do so.

Don’t hesitate, contact our litigation and dispute resolution team today for expert advice.

 

This article was prepared with the assistance of Matthew Theophile.