In the last two articles we have addressed the issue of the winding-up or liquidation of a company. Today we will look at the role of the liquidator whether appointed by the company or the court.
The Companies (Insolvency & Receivership) Act provides for the manner in which a liquidator can be appointed:
- By a resolution of the Board of Directors of the company;
- By a special resolution of the shareholders entitled to vote;
- By an order of the court on an application of the company, a director, a shareholder, a creditor or the Registrar of Companies.
The main role of a liquidator is to ensure a fair distribution of the assets of a company for the benefit of its creditors. This might mean, if the company is insolvent or bankrupt trying to save the business if it means obtaining a better return for the creditors.
A liquidator has certain duties:
- The duty to give certain notices
After appointment the liquidator must immediately give public notice of his appointment, the date and time when the company was put into liquidation and the contact details of the liquidator to be used by creditors or shareholders during working hours, and he must deliver to the Registrar of Companies within 10 days of his appointment for registration a notice of his appointment.
- The duty to keep certain financial and administrative records
While the Act does not specifically state that the liquidator must do this it can be said to be implied since the liquidator is required to present certain reports to creditors and shareholders. The liquidator, for the avoidance of any doubt should keep a record of all minutes of proceedings at meetings or of any matter set by the court or the Act to be done. The liquidator should ensure he keeps a good record of all accounts, receipts and payments for the purpose of later inspection if required by creditors, shareholders or an auditor.
- The duty to hold certain meetings
The liquidator must give notice to all known creditors of a first meeting and must also give public notice of the meeting at least 5 days before that meeting. This meeting must be called within 10 or 30 days of the liquidator’s appointment depending on whether he was appointed by the company or the court. The liquidator may dispense with this meeting under section 41 if he considers it is not necessary.
- The duty to provide information
The liquidator must prepare a report containing a list of all known creditors to send to all creditors, shareholders and the Registrar of Companies for registration. The report must contain a statement of the company’s affairs, proposals for conducting the liquidation and if possible an estimated date for the completion of the liquidation. The time within which the report is due depends on how the liquidator was appointed. If appointed by the company it would be 45 working days and if by the court 25 working days. The liquidator must also send a report to every known creditor and shareholder at the end of every 6 months the liquidation is still underway. He will have 2 months from the end of each 6 months to send that report. In the report he must account for the conduct of the liquidation during that period and any other proposals he has for completing the liquidation. A copy must be sent to the Registrar.
- The duty to examine the conduct of officers of the company
Once the company has gone into liquidation, the directors will no longer have control over the affairs of the company. Any former or present director will be required to give the liquidator details of any property of the company in their possession or under their control and the liquidator has the power to require anyone holding property of the company to deliver it. Company officers are bound to cooperate with the liquidator. Any person who fails to hand over property of the company commits an offence and can be fined VT125,000 or face 2 years in prison. The liquidator has the power to apply to the court for any property disposed of in an unfair manner to be restored to the company, e.g. if property was deliberately sold at an undervalue or the company continued to trade and make further losses after liquidation. In the latter case, directors can be held personally responsible for those losses.
- The duty to gather together and distribute the property of the company.
The primary duty of the liquidator is to gather all the assets of the company and to ensure that he uses his powers to effectively perform his duty. The liquidator recovers the assets of the company not for the benefit of the directors but for the creditors. On his appointment, the liquidator should obtain possession of all books, documents, papers, money and other property of the company which may be in the hands of any person so as to ensure that he has in his possession the maximum assets for distribution. This would include recovering all the debts of the company and continuing and settling any court proceedings or other matters in the name of the company. Once property is sold he may act in the name of the company and execute or sign all the documents which may be necessary. He must then pay the company’s creditors in order of priority.
And lastly, a liquidator must be paid for his work. He is usually paid first out of the proceeds of any sale. His payment can be either a pre-arranged fixed sum, or an hourly rate or a percentage of the assets sold. The value of his work is based on:
- The complexity of the case;
- How effectively he carried out his duties;
- Any extra responsibilities he took on;
- The value and nature of the assets.
DISCLAIMER – This is a legal column to provide basic information on the law and court procedure. It is not to be used as a substitute for legal advice but to be used only as a starting point in understanding what you might need and what you might need to do.