What Is a Liquidator? Role, Powers, Fees and Regulation

A liquidator is a licensed insolvency practitioner appointed to close a company down. They take control of its assets, sell them, pay the costs of the liquidation and then the creditors in the order the law sets, investigate why the company failed and report on the directors’ conduct.

Once a liquidator is appointed, the directors can no longer run the company; the liquidator takes over its bank accounts, assets and records. The liquidator’s authority comes from the Insolvency Act 1986, and it is broad because the job is to act for the creditors as a whole.

The point directors most need before they sign anything: the liquidator works for the creditors, even when the directors chose them. Company Debt is a licensed insolvency practice and our practitioners take these appointments, so we explain this at the first conversation.

If your company is not in liquidation and you are not sure it needs to be, start with our company liquidation advice instead. This guide is about the liquidator once one is involved.

Quick Answer: What a Liquidator Can and Cannot Do

A liquidator can sell your company’s assets, pursue legal claims on the company’s behalf, investigate your conduct going back years, recover money from people who received it improperly, and report on you to the Insolvency Service, which can seek to ban you from being a director.

They must act in creditors’ interests, follow the statutory framework, and account for every decision they make. You cannot override them, but you can challenge them if they act outside their authority or fail in their duties.

Choosing the liquidator in a voluntary liquidation does not make them your adviser. Before the appointment, an insolvency practitioner can advise the directors on the options. After it, their duties run to the creditor body as a whole.

In a compulsory liquidation, where the court has ordered the company to be wound up, they also act under the court’s supervision. So if a liquidator asks to interview you, treat it as part of their investigation, not as advice.

Who Appoints the Liquidator and How It Affects Directors

In a Creditors’ Voluntary Liquidation (CVL), the directors choose to close an insolvent company. The shareholders nominate a liquidator, usually on the directors’ proposal, but creditors can replace that nomination with their own choice when they vote on it, which is called the decision procedure.

A creditor owed a large share of the debt, often HMRC, can use that vote to put in its own choice. Creditors vote by value, so one large creditor can decide it.

In a compulsory liquidation, the Official Receiver, a civil servant in the Insolvency Service, becomes liquidator automatically when the court makes the winding-up order.

The Official Receiver may then refer the case to a private-sector insolvency practitioner if the assets or investigations justify it. As a director you have no say in who that practitioner is. If you are also a shareholder or creditor, the Official Receiver can ask you to put forward a nomination.

In a Members’ Voluntary Liquidation (MVL), used to close a solvent company, the members appoint the liquidator and retain more influence because the company is solvent. But even in an MVL, the liquidator’s statutory duties apply.

If the liquidator discovers during the MVL that the company is in fact insolvent, they must convert the process to a CVL, and creditors then take control of the appointment.

The appointment route matters because it decides who the liquidator answers to. In a CVL they answer mainly to creditors. In a compulsory liquidation they also answer to the court.

In neither case do they answer to the directors.

Key Liquidator Powers Under Schedule 4

The liquidator’s powers are set out in Schedule 4 of the Insolvency Act 1986, with the procedure in the Insolvency (England and Wales) Rules 2016. They are wide.

Sell company assets. The liquidator can sell any asset of the company, including property, vehicles, equipment, intellectual property, and the business itself as a going concern.

They can sell by private sale or auction, and they are not required to accept the highest offer if a lower offer provides better certainty of completion.

What they must do is demonstrate that the sale was conducted properly. Challenging a sale after the fact is expensive and rarely successful, so if you believe an asset is being sold too cheaply, raise it before completion.

Pursue legal claims. The liquidator can bring legal proceedings in the company’s name, and can bring further claims in their own name as liquidator.

These include wrongful trading claims under section 214 (carrying on trading after insolvency was unavoidable), fraudulent trading under section 213, and misfeasance under section 212 (a director’s breach of duty that cost the company money).

They also include claims to reverse transactions at undervalue (section 238) and preferences (section 239), where one creditor was paid ahead of the others.

If you transferred an asset to a family member below market value in the two years before liquidation, we can tell you now: expect the liquidator to investigate it.

Recover assets and money. The liquidator can demand repayment of overdrawn directors’ loan accounts, claw back preferential payments made to connected parties, such as directors and their family, in the two years before liquidation, and reverse transactions at undervalue.

They can also disclaim onerous property, which means walking away from leases or contracts that are a net drain on the estate.

Investigate director conduct. The liquidator has the power to require you to provide documents, attend interviews and explain your decisions.

Section 235 of the Insolvency Act requires current and former directors and officers, and anyone employed by the company in the year before the liquidation, to cooperate with the liquidator.

Other people, such as professional advisers, can be ordered by the court to give information under section 236.

Non-cooperation will feature in the conduct report. The records a director withholds are often the ones that would have shown a decision was reasonable.

Report to the Insolvency Service. In every insolvent liquidation, a report on the conduct of the directors must be filed: by the Official Receiver in a compulsory liquidation, and by the liquidator in a CVL.

If that report identifies unfit conduct, the Insolvency Service can commence disqualification proceedings against you.

The liquidator does not decide whether to disqualify you, but their report is the primary evidence the Insolvency Service relies on.

Key Liquidator Duties That Constrain Their Powers

The liquidator’s powers are broad, but they are not unchecked. Statutory duties and professional obligations constrain how those powers are used.

Duty to act in creditors’ interests. The liquidator’s commercial decisions must be aimed at getting the best return for creditors. If they sell an asset too cheaply, fail to pursue a viable claim, or incur unnecessary costs, creditors can challenge them.

Duty to account. The liquidator must keep detailed records of every receipt, payment, and decision.

They must file progress reports with creditors at least annually and provide a final account before the company is dissolved. These reports are available for inspection, and creditors can ask questions about any entry.

Duty of impartiality. The liquidator must treat all creditors of the same class equally. They cannot favour one creditor over another, accept inducements, or act on conflicts of interest. If a conflict arises, they must disclose it and, in serious cases, resign or seek directions from the court.

How a Liquidator Is Paid, and Who Pays

A liquidator’s fee can be fixed in three ways under Rule 18.16 of the Insolvency (England and Wales) Rules 2016: a percentage of what they sell or pay out, the time they and their staff spend, or a set amount. It can also be a mix of the three.

Before creditors are asked to approve a time-based fee, the liquidator must send them a fees estimate and details of the expenses they expect. That estimate is the figure to hold them to later.

The fee must be approved by creditors, a liquidation committee (a small group of creditors elected to represent the rest) or the court (or by the shareholders in a solvent members’ voluntary liquidation). A liquidator cannot simply charge what they wish.

The approved fee and the costs of the liquidation are paid from the money the company’s assets raise, ahead of the unsecured creditors. Creditors approve the fee because it reduces what they receive.

In a creditors’ voluntary liquidation (CVL), there is also the work before the appointment: preparing the statement of affairs, which lists the company’s assets and liabilities, and asking creditors to confirm the liquidator.

Rule 6.7 lets the reasonable and necessary cost of that work be paid from the company’s assets.

Where the company has too little left, the directors or shareholders often pay that first fee personally. The liquidation does not oblige them to. They pay it so that the company is closed by a CVL rather than by a creditor’s petition to the court.

Our fixed fee for a straightforward CVL is £3,500 plus VAT, plus £500 to £1,500 of external costs such as the insurance bond every liquidator must hold and notices in the Gazette, the official public record.

Our guide to how much liquidation costs shows which work that pays for and what changes the figure.

When you compare quotes, ask whether the figure covers the whole case or only the work to get a liquidator appointed. A low price for the pre-appointment work tells you little if the fee later put to creditors is time-based and open-ended.

If you are also a creditor and believe the fees are excessive, you can ask the court to review them. Our guide to challenging a liquidator’s decisions or fees covers the deadlines.

Who Licenses and Regulates Liquidators

Only a licensed insolvency practitioner can act as a liquidator. Acting as one when not qualified to do so is a criminal offence under section 389 of the Insolvency Act 1986. The Official Receiver, a civil servant, is the one exception and acts by virtue of the office.

In Great Britain, licences come from the three professional bodies the government recognises for this purpose: the IPA, ICAEW and ICAS. Each sets rules on training, experience and conduct, and inspects the practitioners it licenses.

The Insolvency Service oversees those bodies on behalf of the government. It monitors how they authorise and discipline practitioners and publishes an annual review of their regulation.

Practitioners must also follow the Statements of Insolvency Practice and the Insolvency Code of Ethics. These cover, among other things, how fees are explained to creditors and how conflicts of interest are handled.

To check a practitioner, ask which body licenses them, then search that body’s register. Our practitioner Chris Andersen is licensed by the IPA.

If you believe a liquidator has acted improperly, our advice is to complain to them in writing first. If that does not resolve it, use the Insolvency Service’s online complaints form, which passes the complaint to their licensing body to assess.

Know what a complaint can and cannot do. The licensing body can reprimand or fine the practitioner, or take away their licence. It cannot overturn the liquidator’s decisions, and it is not a route to compensation. Only the court can change what the liquidator did or what they are paid.

Director Rights During Liquidation

Liquidation removes your authority to run the company. You keep these rights:

• The right to take advice. You must cooperate with the liquidator. Liquidators usually allow a solicitor to attend an interview, and you can take legal advice, but concern about personal liability is not a reason to hold back information they reasonably require.
• The right to challenge the liquidator. Under section 168(5) of the Insolvency Act, anyone aggrieved by an act or decision of the liquidator in a compulsory liquidation can apply to the court. In a voluntary liquidation, creditors and shareholders can apply under section 112. Directors who are also creditors or shareholders may be able to use these routes to challenge asset sales, fee levels or other decisions.
• The right to ask questions. If you are also a creditor or shareholder you will receive the liquidator’s progress reports. As a director only, you can ask the liquidator questions, though they are not obliged to report to you.

The interview matters because what you say in it goes into the record the liquidator uses for the conduct report. An answer given without checking the records first can be hard to correct later.

Replacing or Challenging a Liquidator

If you believe the liquidator is acting improperly, there are three formal routes, and they do different things.

Creditors can vote to replace the liquidator through a creditors’ decision procedure. This requires a majority by value of the creditors who vote.

In practice, replacing a liquidator is unusual but not unheard of, particularly when creditors believe the current liquidator is too slow, too expensive, or not pursuing claims that should be pursued.

A person aggrieved by an act or decision of the liquidator can apply to the court for relief: under section 168(5) in a compulsory liquidation, or as a creditor or shareholder under section 112 in a voluntary one.

The court can adjust their fees or direct them to take specific action. It can also remove a liquidator on cause shown, under section 108 in a voluntary liquidation or section 172 in a compulsory one.

The third route is a complaint to the liquidator’s licensing body, described above. It disciplines the practitioner but leaves the decision standing, so it needs evidence of misconduct to get anywhere.

Choosing a Liquidator

You only get a real choice in a voluntary liquidation, and even then creditors can substitute their own. Our guide on whether you can choose your liquidator explains when that right is lost.

Once a creditor’s petition has led to a winding-up order, the Official Receiver takes office. Directors then have no say in who replaces them, unless they are also creditors or shareholders.

Four questions tell you more than a firm’s location or its advertising: which body licenses the practitioner, what the quoted fee covers, on what basis the fee will be put to creditors, and who will actually handle your case.

Being close by matters less than it did. Creditors now usually decide by electronic or postal vote rather than at a physical meeting, so few liquidations need anyone in the same room. Our guide to finding a liquidator covers the checks in more detail.

If you instruct us, one of our licensed insolvency practitioners is proposed as the liquidator, and we tell you the fee basis before you decide.

Steps Directors Should Take Before a Liquidator Arrives

If your company is approaching liquidation, the liquidator’s investigation starts the moment they are appointed. Our guide on when directors should stop trading covers the point at which carrying on becomes a personal risk.

Everything you do between now and that appointment is part of the record they will examine. Take professional advice now, organise your records, and make sure you can explain every significant financial decision you made in the two to three years before the company stopped trading.

If your company is not yet in liquidation, our licensed insolvency practitioners can go through the options with you first, including whether liquidation is the right route.

If it is already in liquidation with another firm and you have concerns about the liquidator’s conduct, fees or investigation, take independent legal advice.

FAQs on Liquidator Powers and Duties

Related Guides

• Can I Choose My Liquidator?: when directors keep the choice and when they lose it.
• How Much Does Liquidation Cost?: the fixed CVL fee and what it covers.
• How to Challenge a Liquidator’s Decisions or Fees: the court routes and their deadlines.
• What Happens to Directors in Liquidation: the conduct report and what follows it.