If your company is no longer financially viable and you have applied to wind it up, or if it is insolvent and ends up in liquidation, then a liquidator will need to be appointed. A liquidator’s job is to wind up the company and to generate a return for creditors with the company’s assets, and in unique circumstances, provide a return to shareholders. This article explains some questions you may have about liquidators, including:
- who are liquidators;
- how are liquidators appointed to a company;
- what is a provisional liquidator;
- what do liquidators do once they are appointed;
- how do liquidators get paid; and
- whether you are required to deal directly with a liquidator.
Who Are Liquidators?
A liquidator is an experienced accountant who has:
- met industry requirements;
- undertaken certain courses; and
- been declared fit and proper to become a registered liquidator.
Liquidators are required to renew their registration every three years with the Australian Securities and Investment Commission (ASIC). They must make a declaration each time regarding their own affairs (such as whether or not they have been bankrupt or been disqualified from managing companies).
A liquidator’s actions are governed under legislation. A list of registered liquidators is kept on ASIC’s website.
How are Liquidators Appointed to a Company?
Liquidators are appointed to a company by:
- the court, when an interested party (i.e. creditors or directors) makes an application to the court to wind up the company; or
- members voluntary liquidation, when directors make a written declaration, having formed a view that the company will be unable to pay its debts in full within 12 months and that the company should be wound up; or
- creditors voluntary liquidation, where the directors of a company voluntarily appoint a liquidator following creditors providing their input.
What is a Provisional Liquidator?
A provisional liquidator may be appointed by a court to preserve a company’s assets until a winding up application has an outcome.
A court may appoint a provisional liquidator if:
- the company’s assets are in jeopardy (for example, there is a risk they will be dealt with prior to a liquidator being appointed); or
- a delay is likely between the time the winding up application is made and the court has made an order to either:
- appoint a liquidator; or
- return the company to its directors.
The provisional liquidator may become the liquidator if the court makes an order to appoint a liquidator after hearing the winding up application. However, there is no requirement that the provisional liquidator must become the liquidator.
What Does An Appointed Liquidator Do?
Once appointed to a company, a liquidator will review the company’s books and records (including financial statements, ledgers and journals, critical documents, cash records, bank statements and loans, invoices, etc.) and determine how and why the company failed.
The liquidator’s job is to:
- sell the companies’ assets; and
- distribute the money received from those assets and any remaining cash in the bank, to creditors.
A liquidator is obliged to provide reports to regulators, such as ASIC, in certain circumstances. These include where:
- creditors are expected to receive less than 50 cents in the dollar by way of a distribution following the liquidation; and
- a liquidator suspects a director of the company has committed an offence.
How is a Liquidator Paid?
A liquidator’s fees and any ‘out-of-pocket’ expenses are paid from the company’s assets before any payment is made to creditors. This is usually agreed by creditors at a creditors meeting.
A liquidator is not entitled to be paid until their fees and their ‘out-of-pocket’ expenses are approved by:
- the creditors generally;
- a committee of inspection (made up of a certain group of creditors or company employees); or
- the court.
If you do not understand or agree with the manner in which the liquidator is to be paid, ask them for more information. Further, if you do not think the liquidator’s fees are reasonable, raise these concerns with the liquidator.
Do I Have to Deal Directly With a Liquidator?
If you are a director of a company that has ended up in liquidation, you are generally required to comply with reasonable requests made by a liquidator. A liquidator, from time-to-time, may seek assistance from a company director in:
- obtaining the company’s books and records;
- locating company property and having it delivered to the liquidator; and
- providing reports on the company’s affairs and financial position.
If you are a creditor, the liquidator is required to provide you with a report containing information about your rights within three months of the liquidator’s appointment. You may also receive other reports from time-to-time, either generated by the liquidator or as requested by creditors.
In certain circumstances, a liquidator may write to a creditor seeking to recover money that they believe the creditor received as an unfair preference. This may occur if the creditor received payment within the six months leading up to the company being placed into liquidation. Not all payments received by creditors in this instance are necessarily unfair preference payments, and advice should be obtained with respect to your rights in this regard.
Key Takeaways
Liquidators perform an important role in winding up an entity and perform their tasks in order to benefit creditors as a whole. They are experienced accountants, appointed in a number of different instances and their roles are regulated by legislation. If you are struggling to remain financially viable, facing insolvency, or are a creditor unsure of your rights, LegalVision’s expert insolvency lawyers can guide you through these processes. Contact LegalVision on 1300 544 755 or fill out the form on this page.
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