The Federal Government recently announced a new streamlined, simplified liquidation process which will be able to used from 1 January 2021. The process is intended to reduce the cost of liquidation and maximise the return to creditors. In this article we look at how the process will work and what it will cost.
What businesses will be eligible for the simplified liquidation process?
To be eligible, a business must have liabilities of less than $1 million.
How does a simplified liquidation start?
An eligible company can be placed in liquidation using the simplified liquidation process if a special resolution of shareholders is passed for liquidation and the directors sign an acknowledgment that the company is eligible to take advantage of the simplified liquidation process.
What are the differences between the current liquidation process and the simplified process?
The aim of the simplified liquidation process is to reduce the high costs usually associated with liquidation. The changes proposed include:
- Limiting the circumstances in which a liquidator can claw back unfair preference payments from unrelated creditors and pursuing other types of recovery actions;
- No longer requiring liquidators to call creditors meetings and form committees of inspection;
- Allowing additional use of technology;
- Reducing reporting requirements;
- Reducing lodgements with ASIC, including lodging reports with ASIC on the conduct of those associated with a company; and
- Simplifying proof of debt and dividend processes.
How are creditors ranked?
The ranking of creditors remains unchanged from the normal liquidation regime.
What will the cost be?
For companies which have sufficient assets which can be sold to cover some or all of a Liquidator’s costs, there will be no upfront cost to the directors. For companies with no assets, the cost of a simplified liquidation carried out by Pearce & Heers will generally be no more than $5,500.
How we can help
While there are some benefits to liquidation, it is generally the last resort when it comes to dealing with insurmountable debt. In this regard, when we meet with clients we always look at all options available including negotiating settlement of debts owed to creditors to avoid liquidation and we will now also be considering whether small business restructuring may be available.
There are certain instances however, where liquidation is the best or only option and in these cases for eligible companies the simplified liquidation process will be available to be used.