Fewer than one in 10 liquidators have adopted a simplified liquidation process when winding up companies with debts not exceeding $1 million, even though liquidations may be eligible, a new report from ASIC has found.
Report 789 Review of simplified liquidations: 2021 – 2023 (REP 789) shows that adopting a simplified liquidation process is uncommon, despite it aiming to streamline creditors’ voluntary liquidations (CVLs) under 2021 reforms.
ASIC Commissioner Kate O’Rourke said that out of 4,867 CVLs commenced after 1 January 2021 and finalised by 31 December 2023, only 82 adopted the simplified liquidation process. Another 3,978 CVLs finalised in the period were eligible for simplified liquidation, based solely on the $1 million eligibility criteria, but liquidators didn’t adopt it.
ASIC noted that there were no material differences in the creditor profile or in remuneration paid to registered liquidators when comparing eligible CVLs to simplified liquidations over the time period.
‘Looking at the relatively small number of CVLs where simplified liquidation was adopted, we observed 11% of finalised simplified liquidations paid a dividend to unsecured creditors, whilst 4% of finalised eligible CVLs paid a dividend to unsecured creditors, and they were completed in a shorter timeframe,’ Commissioner O’Rourke said.
ASIC’s review identified that the average number of days to finalise a simplified liquidation was 230, compared to 286 for eligible CVLs.
‘The data suggests that while the take up of simplified liquidations is low, there may be an opportunity for more liquidators of CVLs to adopt the process. We encourage them to consider doing so.’ Commissioner O’Rourke said.
Following the release of REP 789, ASIC will host round table discussions with registered liquidators who have adopted the simplified liquidation process to gain insights into potential opportunities and challenges in adopting the simplified liquidation process.
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Report 789 Review of simplified liquidations: 2021 -2023 (REP 789)
At a glance: Simplified liquidations January 2021 – June 2023
Uptake of simplified liquidations
Between January 2021 and June 2023, 10,541 creditors’ voluntary liquidations (CVLs) commenced and 82 simplified liquidations (SLs) were adopted.
By December 2023:
- 4,867 creditors’ voluntary liquidations had been finalised
- of these, 3,978 appeared to be eligible for a simplified liquidation based on having liabilities not exceeding $1 million.
- 61 out of 82 simplified liquidations were finalised.
Of the remaining unfinalised SLs, 16 were ongoing as at 31 December 2023 and 5 had reverted to a CVL.
Fewer than 1 in 10 registered liquidators (58) adopted the simplified process. Most adopted the simplified process for only one appointment.
| Number of times simplified process adopted | Number of RLs |
| Once only | 34 |
| Twice | 11 |
| Three or more times | 13 |
Comparison of liquidation processes
The following table compares CVLs with SLs. The figures in the table are all averages and based on data from liquidations that commenced between 1 January 2021 and 30 June 2023 and that were finalised by 31 December 2023 (CVL, n=3,978; SL, n=61).
| Outcome | Creditors’ voluntary liquidation (with liabilities ≤$1m) | Simplified liquidation |
| Time taken to finalise liquidation | 286 days | 230 days |
| Total payments made | $28,011 | $35,920 |
| Liquidator remuneration | $17,965 | $19,648 |
| Remuneration as percentage of total payments | 63% | 58% |
| Percentage of CVLs/SLs that paid dividends to unsecured creditors | 4% | 11% |
| Percentage of CVLs/SLs that paid dividends to all creditors (employee, secured and unsecured) | 8% | 13% |
Background
In 2020, the Australian Government introduced legislation which changed Australia’s insolvency framework for small businesses from 1 January 2021. These changes included a new simplified liquidation process.
The changes were introduced to reduce costs and simplify the process of the voluntary winding up of eligible small business with liabilities not exceeding $1 million.
ASIC reviewed data for simplified liquidations and CVLs that commenced from 1 January 2021 to 30 June 2023, which were finalised by 31 December 2023. The final returns lodged by liquidators in the finalised CVLs and simplified liquidations showed the total liabilities, and provided information about receipts, payments, including remuneration, and dividends paid.
A simplified liquidation is intended to be a streamlined CVL for companies that have liabilities not exceeding $1 million. Other criteria must be met before a liquidator can adopt or follow a simplified liquidation process. Find out more via ASIC’s FAQs on simplified liquidation.