A common complaint heard by accountants and directors in relation to the process of initiating a creditors’ voluntary liquidation (CVL) is the timeframe required by law between directors resolving to liquidate and actually holding meetings of members and creditors required to place a company into liquidation.
The delay was a result of the law requiring a minimum 7 days notice being given to creditors of a meeting to confirm the liquidation of a company. As a result of this delay, voluntary administration has been commonly used as a means of initiating a formal appointment immediately. This may have been the case even though there was no intention to propose a Deed of Company Arrangement and the company allowed to proceed to a CVL at the end of the administration period.
Changes to the CVL process now mean a company can now be placed into liquidation quickly and cost effectively. The new procedure still requires a meeting of directors, members and creditors; however, there is no time delay in placing the company into liquidation provided consent to short notice can be obtained in respect of the meeting of members.
Accordingly, if directors are in a position where an immediate decision must be made to place a company into external administration, e.g. they are facing personal liability arising from a Director Penalty Notice issued by the ATO, it is now possible to use a CVL to protect their personal exposure. In practice, this means directors can avoid the cost of a voluntary administration where the outcome is to be liquidation.
Creditors must still be given seven days notice of the meeting, so the liquidator will need to ensure that notice of meeting, summary of affairs and a list of creditors can be provided quickly to creditors after the liquidator’s appointment.
In practice, directors will need to provide all relevant information immediately on appointment of the liquidator.
Please find attached the process chart issued by the Insolvency Practitioners Association detailing changes to the CVL legislation. Click here for this chart
For further information on the new CVL process, please contact our Business Recovery and Insolvency team.
