If you are worrying about whether your business is insolvent and considering that the company might go into liquidation it is worth asking "what does a liquidator do?".
Understanding their role will help you grasp the entire liquidation process and what it might mean for your business. It will also help you prepare for the associated proceedings, avoid unnecessary stress and get ready for life after liquidation.
Here, we'll describe the part the liquidator plays in insolvency proceedings, and how their decisions may affect your company.
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.
What does a liquidator do?
Here, we'll explore the role of the liquidator and how they operate during insolvency proceedings.
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).
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. However, some creditors may not see a return due to liabilities that outweigh the financial worth of the remaining assets.
The role of a liquidator involves a range of administrative tasks, such as arranging meetings, completing paperwork and investigating the directors' conduct.
In terms of specific duties, liquidators are likely to:
- Sell all remaining company assets to maximise returns
- 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.
Do liquidators and directors work together?
Liquidators enable you to officially 'close the book' on your company and move on to new ventures.
While this signals the end of your company, your skills and many elements of the business could take on a new, more successful life.
Directors 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
The liquidator will also carry out an investigation into the conduct of the director(s). They will look for evidence of wrongful or fraudulent trading; if they find this, it could result in fines, 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'll help you take the right path through the liquidation process.