A liquidator is a person appointed by a court, or by the members of a company or its creditors, to regularize the company’s affairs during the process of winding-up, also known as liquidation. The liquidator’s primary responsibilities are to take control of the company, collect its assets, pay off debts, and distribute any remaining surplus to the company’s members according to their entitlements.
Types of Liquidators
1. Members’ Voluntary Liquidation (MVL)
In an MVL, it is the members of the company who appoint the liquidator. This type of liquidation is usually adopted when the company is solvent but wants to wind up its affairs.
2. Creditors’ Voluntary Liquidation (CVL)
In a CVL, the liquidator may be appointed by company members before the meeting of creditors or by the creditors themselves at the meeting. If appointed by the members beforehand, the liquidator’s powers can only be exercised with the court’s consent.
3. Compulsory Liquidation
For compulsory liquidations, the court appoints a provisional liquidator after the winding-up petition is presented. Once the order is granted, the court appoints an official receiver as a liquidator until another officer is appointed.
Legal and Ethical Obligations
The liquidator is in a fiduciary relationship with the company and its creditors as a body. A compulsory liquidation’s liquidator is an officer of the court, adhering to statutory obligations, and may not profit from the position. Liquidators must be qualified insolvency practitioners per the Insolvency Act 1986.
Responsibilities of a Liquidator
- Assume Control: Take control of the company on appointment.
- Asset Collection: Collect all assets and debts owed to the company.
- Debt Payment: Pay off the company’s debts with the collected assets.
- Surplus Distribution: Distribute any remaining surplus among the company’s members based on their rights.
Examples
- Members’ Voluntary Liquidation Example: ABC Ltd., a solvent company, decides to wind up its affairs. The members appoint a liquidator to manage the orderly distribution of assets and closing of accounts.
- Creditors’ Voluntary Liquidation Example: XYZ Corp. is facing financial trouble and opts for creditors’ voluntary liquidation. The company’s creditors and members appoint a liquidator to handle debt repayment and asset distribution.
- Compulsory Liquidation Example: A creditor of DEF Inc. files a petition in court due to unpaid debts. The court appoints a provisional liquidator, and later an official receiver, to manage the company’s wind-up.
Frequently Asked Questions
What is the role of a liquidator in a compulsory liquidation?
A liquidator appointed in a compulsory liquidation is responsible for taking control of the company, collecting assets, paying debts, and distributing any remaining assets. This process occurs under court supervision.
How is a liquidator appointed in a creditors’ voluntary liquidation?
In a CVL, the liquidator can be appointed by the members of the company before the meeting of creditors or by the creditors themselves during the meeting. The liquidator’s powers may need court consent if appointed by members initially.
Can a liquidator benefit personally from their role?
No, a liquidator appointed in a compulsory liquidation, especially, is under statutory obligations and may not profit from their position.
What qualifications must a liquidator have?
A liquidator must be a qualified insolvency practitioner as delineated by the Insolvency Act 1986.
Who supervises the liquidator in a compulsory liquidation?
In compulsory liquidation, the liquidator is supervised by the court, a liquidation committee, and the Department for Business, Innovation and Skills.
Related Terms
- Insolvency Practitioner: A professional authorized to act in relation to an insolvent individual or company.
- Liquidation Committee: A group formed to oversee the liquidation process and ensure actions are in the creditors’ best interests.
- Official Receiver: A civil servant in the Insolvency Service who manages the initial stages of the compulsory liquidation.
Online References
Suggested Books for Further Studies
- “Principles of Corporate Insolvency Law” by Roy Goode
- “Corporate Insolvency Law: Perspectives and Principles” by Vanessa Finch and David Milman
- “Goode on Principles of Corporate Insolvency Law” by Sarah Paterson and David Marrani
