Simplified Liquidation for Small Businesses in the Wake of COVID-19

Small businesses have faced many challenging circumstances in the midst of COVID-19. Some companies are undergoing temporary simplified debt restructuring. For those companies that have experienced a ‘trigger’ to the commencement of winding up on or after 1st January 2021, the option of simplified liquidation may be available. The purpose of simplified liquidation is to better streamline winding up, making it easier and quicker to reach completion of liquidation.

How is Winding Up ‘Streamlined’?

Unlike full creditors’ voluntary winding up, the simplified liquidation process instead:

  • Decides matters without meetings;
  • Does not permit creditors to form a committee of inspection;
  • Requires a liquidator to report to creditors within three months of their appointment regarding only any work performed to date by the liquidator, the estimated timeline for completion of liquidation, and the likelihood of dividends being paid to creditors;
  • Permits only one dividend payment to creditors if funds are available;
  • Allows reasonable information requests made by creditors; and
  • Requires a liquidator to report alleged misconduct to ASIC in certain circumstances.

Eligibility for Simplified Liquidation

To access simplified liquidation, particular requirements must be met, including:

  • The event that triggers the winding up occurs on or after the 1st January 2021;
  • The company is in a creditors’ voluntary winding up;
  • The company liabilities do not exceed $1 million;
  • The company is unable to pay its debts within the next 12 months;
  • When the resolution for voluntary winding up is passed, the company directors have five business days from the day after the resolution to report on the company’s business affairs and the declare their reasonable belief that the company meets the eligibility criteria for the simplified liquidation process;
  • The company’s current directors have not been a director of another company facing debt restructuring or simplified liquidation within the past 7 years;
  • The company’s prior directors within the last 12 months have not been a director of another company facing debt restructuring or simplified liquidation within the past 7 years;
  • The company itself has not experienced restructuring nor liquidation within the past 7 years;
  • The company is in compliance with the Income Tax Assessment Act 1997 and has provided all required documents.

The Role of Liquidators

Liquidators are able to access simplified liquidation if they believe that the eligibility requirements listed above have been met, and 20 days have not passed since the liquidator was appointed.

Should eligibility requirements not be met or cease to be met, the liquidator must cease simplified liquidation. The liquidator must also cease simplified liquidation if they reasonably believe that the company or one of its directors has engaged in fraudulent or dishonest conduct that has had or is likely to have adverse effect on the creditors.

The liquidator must also provide 10 business days’ notice in writing prior to adopting simplified liquidation to each member and creditor. The liquidator must assert reasonable belief that the company is eligible for simplified liquidation, provide an outline of the simplified liquidation process, express that they will not adopt simplified liquidation if 25% of the creditors direct them in writing not to adopt it, and provide information on how creditors may provide this direction.

If you would like to speak with an experienced business and insolvency lawyer, call us at (02) 4929 7002, email us or complete an enquiry form.