A new proposed liquidation process has been announced recently by the Australian Federal Government. The new streamlined liquidation procedure is intended to the reduce the cost of liquidation and hence maximise creditors’ return.
Read on if you are wondering how it will work and how much it will cost you.
To be eligible for the simplified liquidation process, a company or business must have liabilities of less than $1 million and have its taxation lodgements substantially up to date.
How to start the process
The initial step is similar to the usual liquidation process – the passing of a special resolution by the member(s) to place the company in liquidation. Additionally, the director(s) of the company will have to execute an acknowledgement that the business is eligible to take advantage of the streamlined process.
Reasons to choose the simplified process
The primary reason to opt for the simplified liquidation is its lower cost. This is achieved by introducing several proposed changes to the process:
- The requirements for reporting by a liquidator will be reduced;
- The circumstances in which a liquidator can pursue recovery actions, including unfair preference payments from unrelated creditors will also be limited;
- There will no longer be a requirement to call for creditor meetings and form committees of inspection;
- Additional use of technology will be allowed to facilitate the process;
- Statutory lodgements, including lodgement of reports with ASIC on the conduct of those associated with a company will be cut down; and
- Proof of debt and dividend processes will be simplified.
How will creditors be ranked?
The ranking of creditors remains unchanged. They will still be ranked according to the existing liquidation process.
How much will it cost?
The cost to carry out the streamlined liquidation for a company with no assets by us will be no more than $5,500. If there are sufficient assets to cover some of the Liquidator’s costs, there will be no upfront payment required from the directors of the company.
How will liquidation help with tax debts?
Whenever we are approached by a business that is saddled by tax debts, we often advise that they explore all other options that are available to them, before placing the business in liquidation. These options include negotiating an instalment payment with the ATO, or if your business has an existing arrangement with the ATO, renegotiating the payment terms.
While a business may negotiate a remission of penalties and interests imposed of tax debts, the ATO however will generally not reduce the principal amount. If you think your business will not be viable even with remission of interests and penalties, you may wish take advantage of the newly proposed small business restructuring process (SBRP) to avoid liquidation. We have previously written about how the SBRP can help with managing unmanageable tax debts.
There are some businesses however, that are simply no longer viable. The businesses are simply not generating enough revenue to cover their costs and expenses, including tax debts. The shareholders of these companies are often better off placing the companies in liquidation and start off with a clean slate.
Contact Us For Assistance
Our team, led by registered liquidators, are senior members of the Australian Restructuring Insolvency and Turnaround Association (ARITA) and will be able to assist you in recalibrating your business. So, if you think your business may be insolvent and would like to explore the options available to you, contact us at TAX DEBT SOLVED for a free, no-obligation consultation.