fbpx
Insolvency

Liquidation Process For MSMEs Simplified

To be eligible for the streamlined liquidation process the company must have total liabilities of less than $1 million and also have all tax lodgements up to date.

Share

As part of the Federal Government’s reform of the Australian insolvency framework, which commenced on 1 January 2021, a simplified liquidation process was introduced along with a debt restructuring process.

The streamlined liquidation is claimed to reduce the ‘red tape’ that allegedly burdens stakeholders with time and effort and increases the risk of putting poor-performing companies down. We at Clout Advisory have taken the liquidation model from the big city firms and are trying initiatives to reduce the time involved in attending to “smaller” liquidations.

The changes focus primarily on the investigation and reporting requirements of the liquidator. To be eligible for the streamlined liquidation process, the company must have total liabilities of less than $1 million and all tax lodgements up to date. Note: This is lodged, not paid.

The Government has attempted to guard against abuse of the new system for illegal phoenixing, where a company will be prevented from using the simplified liquidation process if a director of the company or the company itself has previously used either the simplified liquidation process or debt restructuring process within seven years.

The other key features of the simplified liquidation process include:

  1. Creditors (at least 25% in value) can request that the simplified liquidation process not be adopted if they believe it is unsuitable for the company or would not provide the best outcome for creditors.
  2. Reverts to a creditors’ voluntary liquidation if the company no longer satisfies the eligibility criteria or circumstances of wrongdoing have been uncovered—any misconduct to be reported to ASIC.
  3. The liquidator is required to report to creditors within three months of the commencement of the liquidator regarding:
    • Work performed to date;
    • Estimate of when liquidation will be finalised; and
    • Likelihood of dividend to creditors.
  4. No meetings of creditors or committees of inspection. Creditors determine matters via the ‘proposal without a meeting process’. Creditors are given at least 15 business days to respond to a proposal.
  5. The liquidator may declare and distribute a dividend only once among creditors.
  6. An unfair preference is not voidable if the creditor has received no more than $30,000 in a single transaction or a cumulative total of multiple transactions (amongst other legislative criteria).
  7. Declaration by the company’s director(s) that the company satisfies the eligibility requirements for the simplified process and must provide the liquidator with a ROCAP within five business days.
  8. The appointed liquidator may adopt the simplified process if the eligibility criteria have been satisfied. The election must be made within 20 business days from the commencement of the liquidation.

It appears to us the only real change is that Liquidators are not required to report to ASIC if there are limited funds for distribution, as is currently the case. We can wait until everything is finished before we do a distribution rather than distribute funds when available and a second distribution later—hardly a streamline.

Share this

Subscribe for more insights

Need more?
Check out more insights

Insolvency

How Do I Avoid Insolvent Trading?

Insolvency

Navigating Employee Rights in Times of Company Insolvency

Business Advice

Financial Recovery: Negotiating Payment Plans With Creditors