A liquidator is a licenced insolvency practitioner who is appointed to take charge of a business as it’s brought to an end.
It’s a highly responsible role, with duties governed by the law. A liquidator is independent of the business and in the case of insolvency, one of their main duties is to oversee the sale of assets and pass on proceeds to creditors. They also take on other vital tasks, including liaising with numerous parties, such as banks, employees, HM Revenue and Customs and suppliers.
What is a Liquidator for?
A liquidator’s work is to close down a business in an orderly fashion. This could be because a business is not able to pay its debts and is insolvent. Or, the business is solvent but there is a wish to shut the firm, rather than sell it on. A liquidation can last at least a year or more. depending on its complexity.
Who Appoints a Liquidator?
The appointment can be made by creditors, by directors or by the courts, depending on the type of liquidation.
Is a Liquidator the same as an Official Receiver?
An Official Receiver works for the government as part of the Insolvency Service and, is also an officer of the court, whereas a liquidator is a licenced insolvency practitioner, in the private sector and is appointed by directors seeking to close a business.
The Official Receiver acts on behalf of the court, so this could be if a bank or other creditors are seeking to close down a business and require a compulsory liquidation. They are often involved in work during the early stages of a business being wound up and they have the authority to investigate directors. Creditors may later appoint their own choice of liquidator as the work progresses.
Is a Liquidator Always Needed to Close a Business?
If a business is not insolvent, a liquidator may not be required. It is instead possible to wind up the business and have it struck off the Companies House Register. This process is known as dissolving a business and is undertaken by completing a DS01 form (for a fee of £8 online and £10 for paper). Notice of this will be published in the Gazette and provided no one has objections, then the company will be struck off some two months later. This route is often taken in simple cases and if there are no assets in the business. Another option, where the business is generally more complex and where there are shareholders, is a Members’ Voluntary Liquidation.
Types of Liquidation
Creditors’ Voluntary Liquidation (CVL)
A Creditors’ Voluntary Liquidation can take place when it is agreed that the business is unable to meet its debts and it is the most usual type of UK liquidation. It will be preferred by directors, since it means they avoid the courts.
A liquidator is appointed by directors and they will ensure that trading stops and the company’s assets are sold – typically auctioned – to repay creditors.
Often, however, there will be insufficient funds to pay all creditors. Once the liquidation process is complete and the business is closed, there are no remaining debts. Even so, it should be remembered that there could be some liability should directors have made personal guarantees.
Employees, meanwhile, are made redundant by the liquidator and if eligible, can claim for statutory redundancy pay.
This is almost always driven by creditors via a petition for a winding up order and involves the court. The directors will have no control over the proceedings, hence why a CVL will be a preferred route. Again, the liquidator’s purpose is to close the business, sell assets and pay creditors.
A court may also appoint a provisional liquidator – the Official Receiver – if they believe there may be some wrongdoing within the business and there is a need to protect assets. This is taken as an emergency measure and can be taken for reasons such as if a winding-up petition from creditors has been presented to the court and there is considered to be an urgent risk that assets will be removed by directors.
The provisional liquidator will often not realise assets – their role is to protect and preserve these until a final decision on the future of the business is decided.
In the case of compulsory liquidation, the company directors no longer have authority to run the business.
Members’ Voluntary Liquidation
This can be a tax-efficient way to close a solvent company, which has assets over £25,000, and a liquidator is appointed by shareholders to oversee the process.
This process requires the agreement of 75% of voting shareholders and directors are required to sign a legally binding Declaration of Solvency. The liquidator will ensure the business has no outstanding debts before realising the assets and distributing these to shareholders.
Will the Liquidator Investigate Directors?
There is an obligation to investigate directors’ conduct during the months and years leading up to a business failure. Directors will be asked for their explanations. Clearly, there are many reasons why a company fails and the directors may not be at fault. In such cases, the liquidator will take note of the circumstances and no action will be taken against the directors.
If, on the other hand, the liquidator believes there has been malpractice or fraud, they will report these concerns and there may be further investigations and potentially prosecution.
Do Directors Remain Involved once a Liquidator is Appointed?
The directors cease their roles in running the business and the liquidator takes over control. However, they will need to make themselves available in areas such as providing the liquidator with any relevant documents and answering questions.
The directors will also no longer have access to any business accounts held by the company. Creditors are kept informed via a Statement of Affairs, which is prepared by the liquidator.
Directors should be available to provide information as required by a liquidator. This could include providing company records and handing over assets. Attempting to conceal information or to misappropriate funds could be a criminal offence and directors could also face being barred from running other businesses.
How is a Liquidator Paid?
The amount paid will depend on how complex the liquidation is and how long the work takes. The payment could be agreed in the case of insolvency after discussions with creditors or with directors. Under the law, a liquidator will be paid before creditors.
A detailed estimate of the liquidator’s fees should be provided in advance as should a breakdown of the hours worked on the case and how this has been completed.
Does the Liquidator Meet Creditors in Person?
Creditor meetings were formerly held in person, if there were sufficient number and demand from them. However in 2017, the rules changed and creditors are updated through the Statement of Affairs, which will be emailed to them. In some cases, a meeting may take place if enough creditors request this. Creditors’ right to payment depends on how they are categorised – secured creditors are first, followed by unsecured creditors, including employees who are owed salary, and shareholders are paid last.
Is Liquidation Right for my Business?
A liquidation and the role of a liquidator can be a complex process and for directors, there can be many uncertainties and concerns. As licenced insolvency practitioners, Company Debt has in-depth knowledge to guide and support our clients and ensure they take the correct action for particular circumstances.