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Role of a Liquidator in a Liquidation

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Role of a Liquidator in a Liquidation

The role of a liquidator in a liquidation procedure remains to ensure the realisation of company assets, enabling the distribution of the insolvent company’s assets to the company’s creditors.

However, an insolvency practitioner will then attempt to rescue the company if viable, and therefore offer greater returns of company creditors.

If a company rescue remains viable? The official receiver remains an option, therefore, to be appointed Liquidator, provided the appointment remains not complex. However, if the appointment requires considerable input, an independent Licensed Insolvency Practitioner appoints.

Company officers (Directors, Company Secretary), currently in office, and those who previously held office in the past three years, remain duty-bound to cooperate with either an appointed Liquidator or Official Receiver to the company. Failing to do so, exposes the directors to legal action against them.

For further details, check out the Insolvency Act 1986 and Directors Duties & Responsibilities.

Ensure you: “Checking the Liquidator” before the appointment.

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Role of a Liquidator in Insolvency?

A Licensed Insolvency Practitioner is authorised to act as Liquidator in the UK, voted at a creditor’s meeting of the company. However, the Secretary of State for Business, Innovation and Skills may also appoint a liquidator. Though it may be that an additional liquidator may be appointed in more complex cases, so having two appointees. The latter requires action usually within four months of the firsts appointment usually.

The Liquidator’s appointment shall remain official once sanctioned by the company’s creditors and advertised in the London Gazette. If the Secretary makes the appointment of State, then each company creditor requires notifying.

Duties of a Liquidator in a Liquidation?

The responsibility of a liquidator of a company remains:

  • Ensuring the most beneficial realisation for company creditors benefit;
  • Deal with claims outstanding against the company;
  • Prioritising the realisations to creditors of the company;
  • Operating most beneficially for company creditors; 
  • The optimising of realisation for company creditors benefit;
  • Realising company assets to an associated company at undervalue.

Reporting on Wrongful or Fraudulent Trading of the former directors of the company.

The Liquidator appointed may therefore have to engage in an action against the former directors of the companies who acted outside the interest of the creditors. For further information on ‘directors duties & responsibilities‘ view, section 214 of the companies act 1986.

A Provisional Liquidator role?

Occasionally, when a winding-up petition presented to the court is considered too risky, the judge will order the company to continue trading. Should the company’s assets remain at risk? Then, the court will appoint a provisional liquidator to ensure the company’s safeguard while waiting for the hearing of the petition.

‘Without Notice’ indicates the Official Receiver is aware of the situation, and no other, so to protect the company’s assets from disappearing, thereby protecting interests outside the company or its directors.

Liquidation and how a Creditors’ Committee selected?

Sometimes in insolvency, creditors may elect to select a creditors’ committee, ensuring their interest remains represented in the liquidation

The liquidator remains required to report to the committee submitting a liquidator’s progress detailing the progress of the liquidation and accounting cost to date.

Who pays the liquidator?

A liquidators fee remains based on professional work and the recorded time performing the closure of the company. Liquidators may agree on a pre-insolvency fee based on a fixed figure. However, fees may be paid by time cost or on a percentage of the realisations of the company’s assets. 

Liquidators fees require the agreement of the company’s creditors. Usually either sanctioned at the initial creditors meeting or for increased fee approval by a creditors committee.

The fees of the Liquidator remain payable from:

  • How effectively do they carry out their duties?
  • The value and nature of the assets?
  • The complexity of the case?
  • Any extra responsibility the Liquidator takes on?

An estimate of the projected Liquidator’s fee must be provided in advance of the appointment. Fee requests need evidence of expenses and progress. Further, a time cost report requires producing detailed time spent on the case to justify the liquidators time when rewarded on a time basis, as detailed in SIP 9,’The Statement of Insolvency Practice‘.

Payments, therefore, made when company assets realised

The Liquidator remains the first paid.

Payments to the companies creditors remain carried out in a particular order:

1. Preferential creditors;

  • Employees
    • unpaid wages and
    • holiday pay.

2. Floating charge holders remain paid from realisations of company assets with a ‘floating charge’ registered.

3. Unsecured creditors;

  • Trade creditors. However, if on 20% of monies left to pay them, then paid accordingly to each creditor. So no preference occurs.

4. If the debts of preferential and unsecured creditors are paid in full. They remain then entitled to interest for the late payment of their obligations. Interest payments paid from the date of the winding-up order.

5. Suppose though, money is left once all creditors and expenses are paid. The company shareholders then receive the balance.

Choosing your Insolvency Practitioner

Clarity with your liquidator remains paramount. 

Directors loans must always be discussed and agreed on. Many insolvency practitioners employ techniques to get you on board before springing on you. They demand to repay loans two or three years down the line. Take care, be upfront with the practitioner and understand your position clearly.

If considering engaging an insolvency practitioner to become your company liquidator, be aware that what you say pre-engagement remains not privileged. 

Liquidators once appointed act for the companies creditors. Directors of the company no longer engage the Insolvency Practitioner.

The Insolvency Practitioner now represents creditors of the company!

Therefore, the Liquidator may not advise former directors on:

  • guarantees are given personally; 
  • bank issues; or 
  • other creditor issues. 

Therefore, avoiding any conflict of interest. 

HBG Advisory specialise in aspects of a company’s rescue, supporting and guiding company directors, while protecting the company directors and therefore the company directors.

Conclusion of the liquidation

The conclusion of a liquidation requires the company’s assets to have been realised and distributed. Once the company liquidation procedure completes and the assets distributed, the liquidator will hold a final meeting with the creditors. Liquidators issue a report detailing the insolvency and provide a summary of their receipts and payments. At this time, they will request release from office, and liquidation concluded.

Role of the Liquidator in a Liquidation

Once appointed, issues with creditors and other matters relating to the company remain the duty of the Liquidator. They manage the realisation of the company’s assets, so they can pay creditors once all costs are satisfied.

The Liquidator deals with all aspects of the paperwork associated with the company. 

The Liquidator is required to investigate the former conduct of the directors, three years before the Liquidator is appointed. If advised “Do not worry, this will not happen”, then choose a different firm because that statement will haunt you later on. Deal with issues upfront, so you can assist and receive a far better outcome.

Liquidators Role in a Compulsory Liquidation

Compulsory liquidations commence by the approval of a creditor petition to the court for a compulsory liquidation & winding-up petition of a company. Assuming the success of the petition, the court winds the company up, and an official receiver (OR) appointed as Liquidator. Once the insolvent company enters a compulsory liquidation, the directors no longer remain empowered to run the company or control the company’s assets. The Liquidator’s role remains to take control of the business, sell the company’s assets and distribute the proceeds to its creditors.

Once the official receiver appoints to conduct a Compulsory liquidation, they often transfer the liquidation to a licensed insolvency practitioner.

Please read; Liquidator Vs Official Receiver – The Difference. & ‘What is a Compulsory Liquidation‘.

Liquidator Role and a Members’ Voluntary Liquidation (MVL)

When a company remains solvent, and wishes to close down. Then a Members Voluntary Liquidation remains often used. As the named suggests, this is a decision made by directors of the company voluntarily. The company must be solvent, though to be considered. To commence, shareholders must make a statutory declaration of solvency. Confirming that the company can pay all its creditors in full with twelve months from signing.

Directors appoint liquidators to realise assets, so payment is made to creditors.

All realisations remain held to the order of the liquidator. The Liquidator settles all legal disputes currently in force. 

The Liquidator pays back company shareholders once all creditors settled in full.

Further, the company shall be deregistered for VAT.

And finally, the Liquidator then files the latest company accounts and strikes the company of the registrar at Companies House. having concluded the liquidation with a report to the creditors.

Please let HBG Advisory support you, your business and its creditors before its too late!

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