What is a Liquidator? Roles and Responsibilities
Financial distress is a position that no company wants to be in. Unfortunately, not every business venture enjoys continued success and the inevitable road for many is liquidation. This includes both insolvent and solvent companies with the liquidation process similar across all forms of liquidation.
There is more to liquidation than simply closing down a company. In brief, the meaning of liquidator is a person who is appointed to wind up the affairs of a company. They are involved in ceasing business operations, liquidating assets and converting them to cash, distributing any monies in priority order, and completing the deregistration process.
Who can appoint a liquidator?
The liquidation process may seem straightforward to the naked eye but there are often several issues that may present challenges along the way. As a result, ASIC requires companies to utilise the services of a qualified liquidator to oversee and carry out the liquidation process. The appointment of a liquidator will vary depending on the liquidation path.
- Creditors’ Voluntary Liquidation: Where an insolvent company voluntarily initiates liquidation through a special resolution of the company’s shareholders. The difference here is that creditors can vote for liquidation following voluntary administration or a terminated Deed of Company Arrangement (DOCA).
- Members’ Voluntary Liquidation: Applies to solvent companies. Directors meet to sign a Declaration of Solvency before passing specific resolutions regarding the liquidation process. This includes the appointment of a liquidator and their remuneration fees.
- Court Appointed: If a creditor has outstanding debts, they may make an application to the court to have a company wound-up. Where necessary, a court will appoint a liquidator to carry out the process.
What are the duties of a liquidator?
There are a number of specific liquidator duties that must be carried out in accordance with the law. Where necessary, a liquidator must:
- Investigate the financial affairs of company
- Determine, collect, and protect all company assets
- Sell company assets in a timely manner to convert to cash
- Distribute monies obtained from liquidated assets to creditors in priority order
- Report and provide information to relevant stakeholders including creditors, Directors, and ASIC
- Lodge a detailed account of any receipts and payments made during the liquidation process
- Submit company deregistration form (Form 578).
The roles and responsibilities of a liquidator are clearly outlined in the Corporations Act 2001 (Cth). Further to this, ASIC provides strict guidelines which liquidators must adhere to and comply with. The guidelines outline everything from the way forms must be submitted to ongoing Director responsibilities and obligations.
Who is an official liquidator?
A court liquidation is also referred to as an ‘official liquidation’. An official liquidator is the name given to a liquidator that is appointed by the court. Unlike a MVL and CVL where the company members resolve to appoint a liquidator, an official liquidator is appointed by either the Supreme Court of the relevant state or the Federal Court.
This occurs due to the following events; if a creditor is owed a debt by a company, they must first issue a statutory demand for payment. A company is given 21 days to comply with the demand with failure to do so allowing the creditor to apply for a Winding Up Order. A subsequent failure to act within the nominated time listed on the wind-up notice will see the court appoint an official liquidator.
What are the powers and responsibilities of a liquidator?
Earlier we touched on liquidator meaning and the role of a liquidator, but we now shift our attention to their powers. During the liquidation process, the control of all company assets, the conduct of business operations, and any other financial affairs are transferred to the liquidator. The decision-making powers of Directors are immediately suspended, and they are required to comply with any reasonable requests made by the liquidator. This includes providing accurate information with respect to company records, location of any assets, and reports on the financial position of the company.
All bank accounts are frozen, and the liquidator has the power to reasonably terminate any employees. In addition, a liquidator may enable a company to continue trading if they have determined that it is in the best interests of the creditors. If this is the case, the liquidator has the power to hire additional employees. A liquidator must only venture down this path if they deem it necessary to complete and sell works-in-progress or if the business is going to be sold as a ‘going concern’. Any decisions made should always take into consideration that the costs of liquidation are to be kept to a minimum.
What are the fiduciary duties of a liquidator?
The relationship between the liquidator and relevant parties is both ethical and legal. The fact that they are entrusted by stakeholders, creditors, and Directors alike to take care of financial assets makes them a fiduciary person. Throughout this process a liquidator must:
- Display a high duty of care: Fulfil all legal and moral obligations in an honest manner
- Remain impartial: Act with expert skill and diligence without favouring any of the parties
- Avoid conflict of interest: This includes displaying extreme caution and ensuring that there is no conflict between professional responsibilities and any personal interests.
The relevant statute and extensive case law ensure that high standards are maintained throughout the profession. Be sure to access our Liquidation Resource Centre for case studies, news, and updates on any legislative changes.
Where to find an expert liquidator?
For all financial needs including liquidation look no further than Australian Debt Solvers. We have extensive insolvency experience and a dedicated team of in-house ASIC registered liquidators. Our team also includes qualified accountants and restructure specialists which allows us to provide the best financial advice. Contact Us today for a free consultation that can help secure your future.
We care about our customersAt Australian Debt solvers we take feedback seriously and pride ourselves on providing the best customer services possible
Rated 5 out of 5