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.
