When licensed insolvency practitioners oversee the process of liquidating a company, they are referred to as a liquidator.
In some cases the liquidator will be the Official Receiver, appointed by the court, such as with a compulsory liquidation.
In other forms of company closure and liquidation, where an Insolvency Practitioner must be involved, the liquidator can be chosen by the creditors. With voluntary liquidations, the liquidator can be chosen by the company via its directors (although with shareholder approval).
Whilst liquidators, however appointed, have the same basic duties and role, the power to choose a liquidator can mean a somewhat different approach to the role. For example, where a liquidator is chosen by a company’s creditors in a compulsory liquidation to take over from the Official Receiver, this can mean a more aggressive and hostile approach to the company’s directors.
We are fully licensed Insolvency Practitioners. If you need to appoint a liquidator, we provide a specialist, experienced service. We work with businesses of all types and sizes but are especially well known for advising small businesses.
Below, we’ll explore their role in this process.
What’s the Role of a Liquidator?
The role of a liquidator in the insolvency process is primarily designed to ensure the correct distribution of an insolvent company’s assets for the benefit of its creditors.
In many cases, the insolvency practitioner (an individual who is authorised to act in relation to an insolvent company) will try to rescue the business if they believe this will produce a better return for the creditors.
Company officers, both current and former, have a duty to co-operate with the official receiver and private liquidators. Under the Insolvency Act 1986, failure to do so could lead to jail time.
How is a Liquidator Appointed?
An insolvency practitioner is appointed at a creditor’s meeting or by the Secretary of State for Business, Innovation and Skills. This will usually occur within four months of the winding-up order, and in complex cases, more than one liquidator can be appointed to act jointly.
The role of a liquidator becomes officially recognised when appointed by a meeting of creditors; this must be advertised in the Gazette. If the appointment is made by the Secretary of State, each creditor must be informed individually.
What are the Powers and Duties of a Liquidator?
Once appointed, the liquidator is responsible for:
- Realising the assets of the insolvent company and achieving the best possible price;
- Address outstanding claims against the limited company and satisfy the claims as set-out by law;
- Distributing the returns to the company’s creditors in order of priority;
- Acting in the best interests of the creditors (not the directors).
Maximising the return for creditors
Maximising the return for creditors is the liquidator’s primary responsibility. As part of this duty, they may apply to the court to restore property that has been disposed of in an unfair way. For example, assets may have been sold to a connected business for less than their market value.
Investigating the Possibility of Wrongful or Fraudulent Trading
A liquidator can also take action against current or previous company directors who did not act in the best interests of creditors (Section 214). For example, if the company continued to trade and make further losses after becoming insolvent, the directors can be made personally liable for the debts.
What is a Provisional Liquidator?
Occasionally, when a winding up petition is presented to court, the judge will deem it too risky for the company to continue trading. This may be because the assets are in some way at risk and, in these instances, the court will appoint a provisional liquidator to safeguard the company until the full petition is heard. This can be done either with or without notice to the the company, the former meaning an official letter will be sent to company directors informing them of the appointment of the Official Receiver as provisional liquidator. ‘Without Notice’ means that it is only the Official Receiver who is aware of the situation, and this is usually due to a fear that company assets may disappear in some way, if the company finds out about it, or that it is demonstrably in the public interest.
How is the Liquidator Paid?
A liquidator is paid for the work that they do. Their payment can be in the form of a pre-agreed fixed sum, an hourly rate, or as a percentage of the assets they realise. This payment should be agreed at the creditors’ meeting or with the creditors’ committee.
The level of payment the liquidator receives should be based on:
• The complexity of the case
• How effectively they carry out their duties
• Any extra responsibility the liquidator takes on
• The value and nature of the assets
A full estimate of the liquidator’s fee should be provided in advance of the work they complete. Their payment claim should be made along with evidence of any expenses and the progress that has been made. There should also be a breakdown of the time spent on the case if the liquidator is receiving an hourly rate. This should be in keeping with the principles set out in The Statement of Insolvency Practice (SIP) 9.
Role of the Liquidator in a CVL
On appointment, the liquidator will manage the liquidation process by dealing with creditors and organising creditors’ meetings where necessary. He or she will sell the company’s assets, and the proceeds will be used to pay creditors after agreed costs and fees have been deducted.
The liquidator will complete and file all the required paperwork. It is also his or her role to investigate the conduct of the company directors for the last three years before the liquidation. He or she has a duty to report any evidence of criminal activity to the relevant authorities.
Role of Liquidator in Compulsory Liquidation
A compulsory liquidation arises when a creditor petitions the Court for the compulsory winding up of a company. If the petition is successful, the company is wound up by the Court, and an official receiver (OR) is appointed as liquidator. Once the insolvent company is in compulsory liquidation, the directors are no longer in control of the business or its assets. The role of the liquidator is to take control of the business, sell the company’s assets and distribute the proceeds to its creditors.
The official receiver will frequently pass the liquidation process to an insolvency practitioner (IP). However, on occasion when the OR deals with the compulsory liquidation, he or she will manage the paperwork, sell the assets to repay creditors, and investigate director conduct and report on director conduct to the relevant authorities.
Role of Liquidator in Members’ Voluntary Liquidation (MVL)
In sharp contrast, this process is used to close down a business that is solvent. The MVL is initiated voluntarily by the company’s directors and can only be used in the cases where insolvency isn’t an issue. As part of the process, shareholders must make a statutory declaration of solvency, which states that the business is solvent and can repay its creditors within 12 months.
The company appoints a liquidator to sell the company’s assets and ensure the company’s debts are settled with the proceeds. He or she will collect all monies owed to the business and settle any legal disputes. The shareholders will also receive their share capital from the liquidator.
The role also encompasses contracts, and he or she also makes certain that all contracts are completed, ended or transferred fully in line with the law as well as deregistering the company for VAT purposes. Finally, the liquidator files the latest company accounts up to the date that the business ceased trading.