If you’re working with a liquidator, it’s helpful to understand their duties and powers, especially in the context of company liquidation.

What is a Liquidator?

A liquidator is an individual or firm appointed to oversee the process of liquidating (winding up) a company or organisation. They might be chosen by the firm’s directors or, in the case of compulsory liquidation, appointed by the court[1]Trusted Source – GOV.UK – Insolvency Act 1986, Appointment and powers of provisional liquidator.

The primary role of the liquidator is to collect the company’s assets, settle any legal disputes, pay off the company’s debts to the extent possible from the assets, and distribute the remaining money to the company’s shareholders. The appointment of a liquidator effectively marks the cessation of the company’s trading activities.

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A Liquidator’s Role and Responsibilities

Powers of a Liquidator

Under the Insolvency Act 1986, a liquidator is endowed with substantial powers essential for the orderly winding up of a company.

These powers facilitate the liquidator’s mandate to liquidate the company’s assets, settle outstanding claims, and address any legal matters on behalf of the company.

Specifically, the liquidator[2]Trusted Source – GOV.UK – What the liquidator does is legally authorised to:

  • Assume control over all company property, ensuring the safeguarding and valuation of assets.
  • Liquidate assets, including the sale of perishable goods and those whose values are likely to depreciate, to prevent loss.
  • Initiate and defend legal actions as necessary, representing the company in all legal proceedings.
  • Continue operating the business insofar as it aids the effective winding up and maximisation of asset value.
  • Obtain necessary sanctions for certain actions, including the payment of debts and the compromise of claims, with such sanctions varying between a members’ voluntary winding up and a creditors’ voluntary winding up.
  • Compile a list of contributories and enforce their obligations by making calls on them.
  • Convene general meetings for resolutions or as deemed necessary for the winding-up process.
  • Notify the liquidation committee when disposing of assets to connected persons, ensuring transparency and fairness.
  • Seek court directions for specific issues, leveraging legal guidance to navigate complex situations.
  • Exercise discretion in the management and distribution of assets, prioritising creditor payments and ensuring equitable treatment of stakeholders.

Rights and Duties of Liquidator

So, what rights does a liquidator have during a winding up?

The role of a liquidator carries with it not only broad powers but also significant responsibilities. The liquidator’s rights enable them to:

  • Access all company records and books for a comprehensive understanding of the company’s financial position.
  • Question the company’s current and former officers to gather pertinent information regarding the company’s affairs.
  • Seek judicial assistance in resolving disputes or clarifying legal ambiguities during the liquidation process.

The duties imposed on a liquidator underscore their obligation to manage the liquidation process ethically and efficiently:

  • Act with a fiduciary responsibility to the creditors primarily, ensuring their interests are protected and prioritized throughout the liquidation.
  • Manage the liquidation with a high degree of diligence, transparency, and impartiality, ensuring all actions comply with the governing legal framework.
  • Conduct the liquidation in a manner that seeks to maximise returns for creditors and, where possible, shareholders, thus adhering to the principle of fairness and equitable treatment of all parties involved.

Difference Between Liquidator and Receiver

While both liquidators and receivers are appointed to manage a company’s financial affairs, their roles and objectives differ significantly.

A liquidator winds up the company’s business for the benefit of its creditors and shareholders, leading to its eventual dissolution. Conversely, a secured creditor may appoint a receiver to take control of the company, typically to recover the debt owed to that creditor.

Receivership does not deal with the company’s assets as a whole, nor is it concerned with distributing funds to all creditors or dissolving the company. The receiver’s primary responsibility is to the creditor that appointed them, and their role is often limited to managing or selling specific assets to satisfy that creditor’s claim.

Disclaiming Contracts or Leases

Within the liquidation process, a liquidator is vested with the authority to disclaim onerous contracts or leases. This power is critical for mitigating financial losses and enhancing the potential return to creditors. Specifically, the liquidator can:

  • Identify contracts or property leases that are financially burdensome to the estate and choose to terminate these agreements.
  • Make strategic decisions to disclaim property that is not beneficial to the liquidation process, including unprofitable contracts or leases that impose significant obligations on the company.
  • Ensure that the company’s assets and resources are utilised most effectively, prioritising the repayment of creditors over maintaining untenable contracts.

Liquidator’s Fees and Expenses

How is the liquidator paid?

The compensation for a liquidator is typically determined by the complexity of the liquidation process, the size and nature of the company’s assets, and the time required to manage the liquidation effectively. Fees can be structured as a fixed amount, an hourly rate, or a percentage of the assets realised or distributed.

These fees, along with any necessary expenses incurred during the liquidation process, are paid out of the company’s assets before any distribution to creditors or shareholders. In some cases, directors pay for the liquidator’s fees themselves if there is no money in the company to cover them.

The Liquidator’s Final Statement of Account

As one of their final tasks, the liquidator must prepare a statement of account detailing any actions taken, including the disposal of assets, payment of creditors, and distribution of any remaining funds to shareholders.

The statement provides transparency to all stakeholders, showcasing the financial outcomes and the efficacy of the liquidation process.

Vacating Office as Liquidator

Once the final statement is prepared and all tasks are completed, the liquidator can vacate their office. This step often requires formal notification to the regulatory body overseeing corporate affairs in the jurisdiction, such as the Companies House in the UK, and may involve a court process or a final meeting with creditors and shareholders.

The vacating of office signifies the official end of the liquidation process, culminating in the company being struck off the register of companies and legally ceasing to exist.

How can we help?

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FAQS about the Role of a Liquidator

A liquidator has the authority to make certain decisions without creditor approval, especially those related to day-to-day operations of winding up the company, like selling perishable goods or managing assets. However, for significant actions, such as selling the company or making large payments, the liquidator may need approval from creditors or the court.

Yes, a liquidator can dispute claims from creditors if they believe the claims are unfounded or inflated. Such disputes can be resolved through negotiation or, if necessary, court intervention.

Creditors can challenge a liquidator’s decisions if they believe the decisions are unfair or breach the liquidation rules. This challenge is typically made through a legal process, where the court reviews the decision and provides a ruling.

Yes, a new liquidator can be appointed if necessary, such as due to resignation, incapacity, or if creditors or the court are dissatisfied with the current liquidator’s performance. The appointment of a new liquidator follows a formal process, including creditor approval or court order.

References

The primary sources for this article are listed below, including the relevant laws and Acts which provide their legal basis.

You can learn more about our standards for producing accurate, unbiased content in our editorial policy here.

  1. Trusted Source – GOV.UK – Insolvency Act 1986, Appointment and powers of provisional liquidator
  2. Trusted Source – GOV.UK – What the liquidator does