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What does a liquidator do?

1st February, 2023 / Posted in liquidation Process

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Are you concerned that your company will go insolvent? Are you thinking about liquidation

liquidatorsIf this is the case, you may be wondering what a liquidator does. A liquidator must be appointed to handle the process of liquidating a company. Understanding their role will help you understand the entire liquidation process and what it may imply for your company. It will assist you in preparing for the proceedings, avoiding stress, and preparing for life after the liquidation.

Most businesses consider liquidation to be a last resort because it results in the closure of the company. Winding up a company and selling its assets in liquidation helps creditors recover funds and ends all legal proceedings involving the company and its directors. These proceedings, whether mandatory or voluntary, always result in the company closing and the directors receiving little compensation.

What exactly is a liquidator?

A liquidator is the person in charge of a company’s liquidation. They are appointed either by the court during a compulsory liquidation hearing or by the creditors during a Creditors’ Voluntary Liquidation hearing (CVL).

A licenced Insolvency Practitioner (IP) or an Official Receiver is a liquidator (OR). They act as a court officer, with authority over the company and the ability to fire employees, deal with creditors, liquidate assets, and close the company.

Be aware that provisional liquidators also exist. When a winding-up petition is filed and the company’s continued operation appears to be too risky, the court appoints liquidators. The provisional liquidators thus protect the company until the full winding-up petition is heard, even if the company is sometimes unaware of the appointment (this being a case of with or without notice!).

What exactly does a liquidator do?

When a liquidator is officially appointed, they are in charge of shutting down the company and investigating the circumstances that led to its insolvency.

Their primary goal is to convert any remaining assets into cash and pay as many creditors as possible with those funds, with the hope of also paying dividends. However, some creditors may not receive a return because liabilities exceed the financial value of the remaining assets. Liquidators ensure that all creditors are treated fairly and in accordance with their legal rights.

A liquidator’s responsibilities include arranging meetings, completing paperwork, and investigating the directors’ actions. However, in terms of specific responsibilities, liquidators are likely to:

  1. To maximise profits, sell all remaining company assets (with the asset value checked by independent valuation agents to ensure valuing at a fair price)
  2. Make payments to creditors using capital from the company’s assets.
  3. Complete any outstanding contracts or legal disputes, as well as the final VAT bill, by the deadline. Complete all relevant paperwork and report to authorities.
  4. Communicate with creditors, keeping them informed and involving them in decision-making as needed.
  5. Determine the costs of liquidation.
  6. Conduct interviews and write a report on the factors that led to the liquidation.
  7. Take the company off the Companies Register.

A liquidator’s role is multifaceted, with their full scope of responsibilities determined in part by the type of liquidation into which a company is entering.

What types of processes can a liquidator be appointed to handle?

Members’ voluntary liquidations, creditors’ voluntary liquidations, company voluntary arrangements, pre-pack administrations, and company administrations can all be used to help struggling businesses.

What does it cost to hire a liquidator?

Hiring a liquidator has a cost basis that is determined by the complexity of the business’ situation, the volume of assets held, and the liquidator’s effectiveness.

Payment can be made in the form of a lump sum, an hourly rate, or a percentage of the assets sold. Whatever payment is made, it must be agreed upon at the creditors’ meeting.

A full estimate of the liquidator’s fees should be provided before they begin work. According to the Statement of Insolvency Practice (SIP) 9 principles, a breakdown of the time spent on the case, where and how should be provided. Any expenses should be documented and accounted for.

Do liquidators and directors collaborate?

Liquidators allow you to officially “close the book” on your business and move on to new opportunities. This is the end of your company, but your skills and other aspects of the business may be transferred to new, more successful projects.

Moving on, directors continue to play a role in the early stages of the liquidation process. As a director, for example, you must:

  1. Send the liquidator all company books and records.
  2. Fill out a questionnaire about the company.
  3. Attend a meeting with the insolvency practitioner and shareholders to approve the liquidation process.

Another function of the liquidator is to investigate the conduct of the director(s), looking for evidence of wrongdoing or fraud. If they discover any evidence, directors may face fines, director disqualification, or even a prison sentence. If they find nothing, the company will be liquidated, and the director(s) will be free to move on, find a new job, or even start a new company.

For the latter, you’ll need a thorough understanding of the ‘Insolvency Act 1986’ to ensure you’re eligible to run a new company and that the name you choose does not violate section 216 of the Insolvency Act – basically, you can’t use the same or similar company name as the liquidated one.

Contact our insolvency experts for expert advice on the Insolvency Act and all liquidation-related processes. We are here to help you navigate the liquidation process by drawing on our years of experience working with HMRC, banks, creditors, suppliers, shareholders, lenders, and others.

Photo of Robert Moore

by Robert Moore

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