ASIC report reveals low take-up of simplified liquidations
The adoption of simplified liquidations remains low despite benefits such as shorter time frames for completion, according to a recent ASIC report.
A report published by ASIC yesterday revealed that fewer than one in 10 liquidators adopted a simplified liquidation process when winding up companies with debts not exceeding $1 million, even though these liquidations may have been eligible.
Report 789 Review of simplified liquidations: 2021-2023 indicated the adoption of the simplified liquidation process remained low since its introduction at the start of 2021.
ASIC commissioner Kate O’Rourke said out of 4,867 creditors’ voluntary liquidations (CVLs) commenced after 1 January 2021 and finalised by 31 December 2023, only 82 adopted the simplified liquidation process.
According to the ASIC report, 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 no material differences in the creditor profile or remuneration paid to registered liquidators when comparing eligible CVLs to simplified liquidations over the period.
"Looking at the relatively small number of CVLs where simplified liquidation was adopted, we observed 11 per cent of finalised simplified liquidations paid a dividend to unsecured creditors, whilst 4 per cent of finalised eligible CVLs paid a dividend to unsecured creditors, and they were completed in a shorter timeframe," 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," O’Rourke said.
The corporate regulator noted that some reasons for the low uptake of simplified liquidations were outlined in the PJC Report into Corporate Insolvency in Australia.
The report noted that the complexity, cost and efficiency of the simplified liquidation process were not significantly different from the standard creditor's voluntary liquidation process.
It also highlighted tight time frames for the adoption of the simplified liquidation process and few incentives for insolvency practitioners or creditors to use the pathway.
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.
"To obtain a further understanding of the data and findings from this report, we will continue to seek feedback from registered liquidators and other stakeholders about the SL process," ASIC said in the report.
"To assist registered liquidators, we intend to provide additional guidance on the proper recording of receipts and payments in our user guide for Form 5603 End of administration return and Form 5602 Annual administration return.
"We will also continue monitoring lodgement of ISRs and continue liaising with Treasury where necessary."
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