What Does A Liquidator Do Overview?
A Liquidator is a Licensed Insolvency Practitioner who is appointed by the company creditors or shareholders to liquidate the company.
Just as a company requires people to operate and direct its affairs ie. the Directors, a company in Liquidation similarly requires a person (the Liquidator) to operate the procedure referred to as Liquidation.
A Liquidator Acts In Place Of Directors
A Liquidator acts in place of the company Directors who are not permitted to act as Liquidators. Part of a Liquidator’s role, particularly in the case of an insolvent Liquidation such as a Creditors Voluntary Liquidation or Compulsory Liquidation is to review the conduct of the Directors. It would be impractical for Directors to review their own conduct. For Directors, to in effect mark their own homework would put them in a unique position of conflict.
What Is The Purpose Of The Appointment?
It is the job of a Liquidator to get in, realise and distribute the company’s assets in accordance with the insolvency legislation rules and regulations.
The purpose behind Liquidation is to wind up a company’s affairs so that it can be laid to rest after it has finished trading.
Liquidation is the legal process through which the post-trading period is finalised. Once a company has ceased trading, until it is liquidated and then dissolved, it is still required to comply with company law to file statutory accounts and HMRC tax returns. Typically that involves incurring costs each year to instruct an accountant to deal with such accounts and tax compliance.
What Is The Point Of A Liquidator In An Insolvent Liquidation?
However, notwithstanding that position, the most common reason for a Liquidator to be appointed is that a company is insolvent and unable to continue trading because the Directors would be at serious risk of Wrongful Trading. Wrongful Trading carries a serious risk of a Director being personally liable for the losses incurred during a period of insolvent trading if their conduct was such that they knew the company would have to be liquidated and yet continued to trade despite this position.
When a company is insolvent and cannot continue trading all creditors cannot be paid their debts in full. As a result, there is a legal mechanism that sorts out matters for the Directors and creditors so that disorder and anarchy over the company’s affairs do not prevail. It is the Liquidator’s job to administer the company’s concluding period in that orderly fashion as prescribed by the legislation.
Progress Reports At Companies House
If you go to Companies House you will see that companies in Liquidation are still live after the Liquidator has been appointed. They have the status of being in Liquidation. They still exist even though their life is usually coming quickly to a conclusion.
If you check the filing history at Companies House you will typically see activity over time as the Liquidator files their progress reports each year on the course and conduct of the Liquidation. The purpose behind an annual Liquidator’s progress report is to explain what the Liquidator has done, how much they have been paid along with the other expenses of Liquidation being accounted for so that shareholders and or creditors can see what they could receive as a dividend.
Role Of A Liquidator
When a Liquidator is appointed they may be faced with competing claims to the company’s assets.
For example, in the case of a clothing retailer’s reliance on supplies of goods on credit from a distributor, a Liquidator may find that the supplier is claiming retention of title (“ROT”) over the goods until they have been paid for. In other words, the Liquidator may enter office and become involved in attempting to decipher disputes over claims to the assets.
As a result, the duty of the Liquidator is to unscramble the company in Liquidation’s entitlement to the assets. If the company is not entitled to any assets such as when a valid ROT is claimed then it is his or her duty to adopt a fair and reasonable approach to enabling the lawful owner of such assets to take possession.
The same issues may arise in terms of creditor claims which is important when disputes arise over who is and is not a creditor of the company. A Liquidator will need to ensure that only genuine creditors can claim in a Liquidation so that when a dividend is paid, it goes to the right creditors. Therefore one of the things that a Liquidator does is to adjudicate the claims of creditors and where appropriate to accept or reject claims.