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Liquidation, also known as ‘winding up’, is the process of selling off the assets of an insolvent company and distributing the cash to its claimants. Simplified liquidation was introduced in Australia into the Corporations Act 2001 on 1 January 2021 to provide a more cost effective and time efficient statutory framework through which directors could terminate their insolvent business.

What Makes It Simplified?

A simplified liquidation necessitates fewer reporting obligations and a reduced investigation. The liquidator’s only mandatory report must be provided to creditors within the first three months of their appointment and includes:

  • Progress of work completed to date
  • An estimated date of when the liquidation will be finalised
  • The likelihood of creditors receiving a dividend

In addition, during the simplified process creditor’s rights are limited to requesting information only. Unlike court-ordered liquidations, this means that they are unable to call meetings, provide the liquidator with directions or appoint a reviewing or replacement liquidator. Instead, resolutions of creditors must be passed without meetings using proposals.

Who Is Eligible?

The simplified liquidation process can only be adopted by a creditors’ voluntary liquidation whereby the winding up process commenced on or after 1 January 2021. In addition to this, eligibility criteria requires that:

  • The company’s total liabilities do not exceed $1 million
  • The company would be unable to repay its debts within 12 months
  • The company has met its tax reporting obligations by lodging all returns, notices, statements, applications or any other required documents
  • No directors in the preceding seven years, or acting directors in the preceding 12 months, of the liquidation commencement have also been the director of another company subject to restructuring or simplified liquidation
  • The company has not already undergone restructuring or simplified liquidation in the preceding seven years

How Wisdom Can Help

With over 50 years of collective industry experience, our friendly team at Wisdom are experts at navigating liquidation and bankruptcy. We can assist you with analysing your financials and identifying the best strategy for your situation. When liquidation is required, we can guide you through the process of appointing a professional, registered liquidator and liaise with them to ensure the best possible outcome for you and your creditors.

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