Simplified Small Business Liquidation
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One of the key components of the Government’s proposed reform to corporate insolvency is a simplified Small Business Liquidation process which is intended to facilitate faster and more cost-efficient liquidations to meet the needs of eligible small businesses.
This article provides an overview of the proposed simplified liquidation process. Subject to the Federal Parliament passing the Bill, the new measures will commence on 1 January 2021.
Entering into the (simplified) small business liquidation process
A liquidator will be able to adopt the simplified small business liquidation process within 20 days of the commencement of liquidation if the company meets the following eligibility criteria:
- the company has passed a special resolutions that the company be wound up voluntarily (Simplified liquidation process is not available in a members’ voluntary liquidation or a court liquidation);
- the directors have given the liquidator a report about the company’s affairs and a declaration that the company will be eligible for the simplified liquidation process;
- the company is insolvent;
- the total non-contingent liabilities of the company do not exceed the $1 million;
- no director of the company has bee a director of a company previously which used the simplified liquidation process;
- the company’s tax lodgements are up to date; and
- the company has paid in full all employee entitlements.
Features of the simplified liquidation process
While the small business liquidation preserves and applies most of the existing liquidation framework, it adopts the following procedural changes:
- Reduced investigation and reporting requirements. Under the simplified liquidation process, liquidators are not required to lodge a statutory report to ASIC outlining their investigation into suspected wrongdoing of the company.
- Reduced meetings requirements. Instead of holding creditors’ meetings, liquidators will provide information to creditors electronically and proposals will be put by giving notice to creditors for the purposes of electronic voting.
- Fewer voidable transactions. For instance, the draft regulations provide that an unfair preference would not be voidable under small business liquidation where:
- The creditor is not a related entity of the company;
- the transaction was less than $30,000 in value; and
- the transaction occurred at least three months prior to commencement of liquidation.
Ceasing the simplified liquidation process
The proposed reforms provide that the liquidator must cease to follow the small business liquidation process and revert to generic liquidation if
- at least 25% in value of the creditors of the company have requested the liquidator not adopt the simplified liquidation process;
- the liquidator becomes aware that the eligibility criteria are no longer met; or
- the liquidator has reasonable grounds to believe that the company or one of its directors has engaged in fraudulent or dishonest conduct that has or is likely to have a material adverse effect on the interests of the creditors as a whole.
The team at Collins Wentworth are experienced in business financial matters. If you have concerns about the financial position of your business and wish to know more about how we can assist you, contact us today.
More information about the draft bill, regulations and rules can be found at the following links:
Corporations Amendment (Corporate Insolvency Reforms) Bill 2020 (Cth)
Corporations Amendment (Corporate Insolvency Reforms) Regulations 2020
Insolvency Practice Rules (Corporations) Amendment (Corporate Insolvency Reforms) Rules 2020
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