What Does the Liquidator Do?

While it is a straightforward process, company liquidation encompasses a number of complex issues that need to be covered to ensure that it is carried out correctly.  This article is designed to give you a brief overview of what a liquidator does and what is involved. However, before we do this, we need to explain what a liquidation is. 

What is a Liquidation?

Most liquidations occur when a company is no longer able to pay its debts in full or in more technical terms becomes insolvent. The company’s assets are sold off and the funds used to settle creditor’s claims at least in part.

Once the process is completed all legal action against the company and its directors is ended which can be a huge relief to all those involved. It is worth pointing out that becoming insolvent is not the same as unprofitable.  The vast majority of companies that suffer liquidation are profitable, their problem is usually down to cash flow, and other issues such as loss of business to new competition or loss of important customers who delivers a substantial percentage of the turnover.

There are 3 types of liquidation

1. Creditors’ Voluntary Liquidation (CVL): This is when the decision to liquidate the company is taken voluntarily by directors whose Company is unable to pay debts as and when they fall due. The directors take the decision to close down the business. In this scenario, the process is initiated by the directors who will appoint the liquidator (a licensed Insolvency Practitioner) and not the company’s creditors. Neither the Court nor the official receiver are involved in a CVL procedure.
2. Members Voluntary Liquidation (MVL): In this case the Company is solvent and able to pay its debts.  This route is taken by Directors for Tax Purposes or to restructure the Company. This requires appropriate resolutions to be passed at a general meeting to wind up the company and appoint a liquidator to enable a distribution to be made to the shareholders.
3. Compulsory Liquidation Process: Here the liquidation is initiated by a dissatisfied creditor and the Company is wound up by the Court. A Winding up Order is issued and an Official Receiver is appointed to manage the process. The Official Receiver may seek the appointment of liquidator if he or she believes that the complexity of the case requires it.

What is a Liquidator?

A liquidator, a Licensed Insolvency Practitioner is the person who manages the entire process from soup to nuts irrespective of whether or not the business is solvent. A liquidator must carry out the procedures set out in place to efficiently close the company. The liquidation of a company can only be carried out be a licensed and regulated insolvency practitioner. The legislation which forms part of the procedure is the Insolvency Act 1986.

The Role of the Liquidator 

The liquidator has a host of powers, depending on the type of liquidation that he or she is administering. Their main responsibility is to convert any remaining assets or property of the company into cash to repay as many creditors as possible. In addition to a wide range of administrative tasks, such as paperwork, they will have to investigate director conduct and schedule meetings with creditors and directors. The specific duties of the liquidator will also include the following:

• Review all debts and decide which should be repaid in full or in part. In some cases, claims can be rejected
• Bring to an end any outstanding contracts or legal disputes
• Seek valuations for company assets to maximise returns for creditors
• Closely inspect transactions that may have been sold at undervalue
• Keep creditors informed and involved in the decision-making process where appropriate.
• Communicate how creditor claims are progressing, the reasons why the company failed as well as details about the redistribution of assets
• Distribute funds to creditors fairly, taking into account the repayment structure which begins with the fees and expenses of the liquidation process itself
• Interview and report on the factors that led to the company’s demise and liquidation. Report to the Secretary of State if he or she identifies director misconduct or fraud
• Dissolve the company.

Although not the subject of this article it is worth mentioning that, if handled well, a skilled and experienced Insolvency Advisor will also help you with the more personal ramifications of insolvency, avoiding personal legal proceedings, loss of your home and bringing stress relief so you can sleep at night.

Finally, If I can end with the one most important message, if your Company is in financial difficulty don’t delay, seek advice today.  The sooner you do this the better the likely outcome.  Remember, hope is not a business strategy!

Conclusion 

If you want to find out anything further about this topic then please feel free to call me on 0330 236 9930, 0330 236 9938 or 07961 116321. All conversations will be in strict confidence. You can also email me vee@navigatebr.com.

This article is for information and interest only. It is not a substitute for full professional advice, which will take in to account the specific and individual circumstances. Navigate Business Recovery Limited cannot accept any responsibility for any loss arising as a result of any person or organisation acting or refraining from acting on any information.