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What does a liquidator do?

14 May 2020

liquidation Sale

Are you worried about that your business is going insolvent? Are you considering liquidation? If so, you may find it useful to answer the question, what does a liquidator do? After all, you will need a liquidator appointed to take on the process. Also, understanding their role will help you grasp the entire liquidation process and what it might mean for your business. It will help you prepare for the associated proceedings, avoid unnecessary stress and get you ready for life post-liquidation.

Liquidation is a last resort for most businesses, as it results in company closure. Winding up a company and selling its assets through liquidation helps recover funds for its creditors and ends all legal proceedings concerning the company and its directors. These proceedings can be either compulsory or voluntary, but always result in the company closing and the directors seeing little return.

1. What is a liquidator?

A liquidator is the person who oversees the liquidation of a company. They are either appointed by the court during a compulsory liquidation hearing, or by the creditors in a Creditors' Voluntary Liquidation (CVL).

A liquidator is either a licensed Insolvency Practitioner (IP) or an Official Receiver (OR). They act as an officer of the court, having power over the company, able to dismiss staff, deal with creditors, realise assets and close the company.

Be aware that there can also be provisional liquidators. These are liquidators appointed by the court when a winding-up petition is presented and the company continuing to trade seems too risky. The provisional liquidators thus safeguard the company until the full winding-up petition is heard, at times even the company are unaware of the appointment (this being a case of with or without notice!).

2. What does a liquidator do?

Once a liquidator is officially appointed, they are in charge of closing down the business and investigating the circumstances that led to the company's insolvency. 

Their main purpose is to convert any remaining assets into cash and pay as many creditors as possible with those funds, hoping to pay dividends too. However, some creditors may not see a return due to liabilities that outweigh the financial worth of the remaining assets. Liquidators ensure creditors are all treated in accordance with their legal rights. 

A liquidators role involves a variety of administrative tasks: arranging meetings, completing paperwork and investigating the directors' conduct. But in terms of specific duties, liquidators are likely to:

  • Sell all remaining company assets to maximise returns (with the asset value checked by independent valuation agents to ensure valuing at a fair price)
  • Arrange payments for creditors using capital from company assets
  • Wrap up any outstanding contracts or legal disputes, as well as the final VAT bill
  • Complete all relevant paperwork to deadline and report to authorities
  • Communicate with creditors, keeping them informed and involved in decisions as appropriate
  • Settle liquidation costs
  • Interview and report on the factors that caused the liquidation
  • Remove the company from the Companies Register

The role of a liquidator is multi-faceted, with their full range of responsibilities determined in part by the type of liquidation a company is entering.

3. What processes can a liquidator be appointed for?

Liquidators can be appointed to assist struggling businesses with members' voluntary liquidations, creditors' voluntary liquidations, company voluntary arrangements, pre-pack administrations and company administrations.

4. How much does it cost to get a liquidator?

Hiring a liquidator has a cost basis dependent on the complexity of the business' situation, the volume of assets held and how effectively the liquidator works. 

Payment can be a fixed sum, hourly rate or as a percentage of the assets realised. Whatever the payment, it should be agreed at the creditors meeting. 

A full estimate of the liquidators fees should be provided in advance of the work they do. A breakdown of the time spent on the case, where and how should be given, as set out in the Statement of Insolvency Practice (SIP) 9 principles. Evidence of any expenses should also be accounted for.

5. Do liquidators and directors work together?

Liquidators enable you to officially 'close the book' on your company and move on to new ventures. This signals the end of your company, but ultimately your skills and other elements of the business could be taken on to new, more successful projects.

Moving on to directors, they still have a role in the early stages of the liquidation process. For example, as a director, you must:

  • Send all company books and records to the liquidator
  • Complete a questionnaire regarding the company
  • Attend a creditors' meeting

Another role of the liquidator is to investigate the conduct of the director(s), looking for any evidence of wrongful or fraudulent trading. If they happen to find any evidence, consequences arise such as fines, director disqualification or even a prison sentence. However, if they find nothing, the liquidation process will wind up the company and the director(s) will be free to move on, find a new job or even start a new company.

For the latter, you'll need a comprehensive understanding of the 'Insolvency Act 1986' to ensure you're eligible to run a new company, and that the name you choose is not in breach of section 216 of the Insolvency Act - basically, you cannot use the same or similar company name to the liquidated one.

Talk to our insolvency experts who can provide you with specialist advice on the Insolvency Act and all liquidation-related processes. Using our years of experience working with HMRC, banks, creditors, suppliers, shareholders, lenders and more, we are here to help you take the right path through the liquidation process.

Categories: Liquidation, Complete Guide to Creditors Voluntary Liquidation CVL

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