If your company may be insolvent, acting quickly to reset or wind up your business can ease the strain and reduce liability risk.
If you’re eligible, simplified liquidation can be a smart path for your small businesses in this situation. This is especially true where voluntary administration isn’t feasible, and liquidation seems complex and costly.
To help you clearly assess your options, this guide explains what simplified liquidation is, the eligibility criteria and how it’s different from the standard liquidation process.
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What is simplified liquidation?
Simplified liquidation is exactly what it sounds like: a streamlined version of standard liquidation (creditors’ voluntary liquidation or CVL).
It became available on 1 January 2021 under the Corporations Amendment (Corporate Insolvency Reforms) Act 2020 and is regulated by the Corporations Act 2001 (Cth).
Designed for small companies with straightforward affairs, simplified liquidation lightens the liquidator's investigative and reporting work, usually cutting costs.
Like standard company liquidation, the process is initiated by you, the directors. You decide your company is insolvent – can’t pay your debts when due. You then appoint an Australian Securities and Investments Commission (ASIC) registered liquidator, also known as a registered insolvency practitioner.
The outcome of simplified liquidation is also the same. Your company is wound up and deregistered with ASIC. The difference is the ease of the process.
Does your company qualify? The eligibility criteria
Want to know if you qualify for small company simplified liquidation? Here are the legislated and ASIC-approved criteria you need to meet:
Criteria 1: Total company liabilities less than $1 million on day of appointment
Your company’s liabilities on the day of the liquidator’s appointment must be less than $1 million, excluding contingent liabilities – potential debts or obligations.
Your company should also be unable to pay its debts in full within 12 months.
Criteria 2: All employee entitlements have been paid (or will be paid) in full
All outstanding employee entitlements must be paid, or your company needs to be able to pay them in full during the simplified liquidation process.
This covers unpaid wages (overtime, penalties), accrued leave, redundancy or severance payments, and superannuation guarantee contributions.
Criteria 3: No director convictions for certain offences in previous 10 years
No current or recent director (for the past 12 months before liquidation) can have been convicted of certain serious offences in the last 10 years.
Examples of offences include things like fraud, embezzlement, making false statements to ASIC or creditors and wrongly getting rid of company assets.
Criteria 4: No simplified liquidation or small business restructuring 7 years before
Your company shouldn’t have previously been in a simplified liquidation or a small business restructuring process (within the past 7 years).
This condition ensures simplified liquidation is only available for new insolvency cases.
To meet simplified liquidation eligibility, your company has to meet all four of the above criteria. Note: a registered liquidator should confirm eligibility; you can’t self-qualify.
Simplified liquidation vs standard CVL: side-by-side comparison
Here’s a handy comparison table to help you quickly understand the differences, obligations and impacts of simplified vs standard liquidation.
Simplified liquidation | Standard CVL | |
Who can use it | Small companies meeting eligibility criteria (liabilities < $1M, employees paid, etc.) | Any insolvent company – no eligibility threshold |
Liquidator’s role | Streamlined – less investigative burden, lower reporting obligations | Full investigation of company affairs and director conduct, convene meetings |
Typical cost | Generally lower due to reduced complexity of eligible company’s financial affairs | Higher – reflects full investigative process |
Typical timeframe | Similar to standard CVL – most complete within 3–6 months | 3–6 months for straightforward cases; longer if complex |
Reporting to creditors | Reduced obligations; less formal communications | Full reporting, including detailed financials and director conduct |
Outcome | Company wound up and deregistered with ASIC | Company wound up and deregistered with ASIC |
Best for | Simple, straightforward insolvencies with limited creditors and assets | Complex insolvencies, significant assets, or director conduct concerns |
If you’re eligible, simplified liquidation offers a more efficient path to the same result. If your company doesn’t meet the eligibility criteria – or things are more complex – standard CVL is more suitable.
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How the simplified liquidation process works
Think your company might be eligible for the simplified liquidation? Here’s a quick overview of how the process works and what to expect.
Step 1 – Director resolution: Your board collectively agrees your company is insolvent and passes a resolution to wind things up voluntarily.
Step 2 – Appoint a registered liquidator: You appoint a registered liquidator under ASIC who confirms eligibility for the simplified liquidation, before kicking off the process.
Step 3 – Notify creditors and ASIC: The liquidator notifies creditors that you’re entering the simplified liquidation process and lodges the necessary forms with ASIC.
Step 4 – Realise assets: The liquidator identifies and sells any company assets
Step 5 – Distribute funds and deregister: The liquidator distributes the available funds to your creditors in order of priority. Once everything is wrapped up, they deregister your company with ASIC.
How long does simplified liquidation take?
The simplified liquidation process usually takes 3-6 months, similar to standard creditors’ voluntary liquidation. The main difference is there’s less paperwork and reporting, which can reduce costs and make the process easier to manage.
Act fast; liquidate simply
If your company ticks all of the simplified liquidation boxes, the process offers a lower-cost, more efficient path than standard creditors’ voluntary winding up.
In any situation where insolvency is looming, acting early can preserve more assets for your creditors, help limit your personal liability risk and give you the reset and relief you need.
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