A liquidator is a person with the legal authority to manage the liquidation of a company. The liquidator is primarily responsible for calculating the company’s assets during liquidation. They also deal with the entire claim against the company with the help of the assets. The appointment of liquidators is typically done by the court. Although liquidation may seem like a straightforward process, it can often give rise to various complexities and issues. As a result, it is essential to have a comprehensive understanding of the liquidation process and the duties of a liquidator involved in the process. Therefore, this guide aims to provide you with a detailed insight into the liquidation process and the responsibilities of a liquidator.
What Is Liquidation?
Liquidation, in simple words, is the process of liquidating a company. To liquidate means the process of converting assets into cash. For example, if you sell your house and car for money, you have liquidated your assets. The same thing goes for companies.
So, a company liquidates its assets to settle all the claims of the creditors and shareholders. This happens when the company is unable to pay the due debts.
Types Of Liquidation
· Creditor’s Voluntary Liquidation
A creditor’s voluntary liquidation is closing an insolvent company and giving the dues to the creditors. In this process, the interest of the creditors comes first so that they don’t suffer any financial loss.
· Compulsory Liquidation
Liquidation is initiated when the creditors bring forward allegations of insolvency against a company and subsequently take legal action. In such cases, the court orders the commencement of the liquidation process and appoints a liquidator to oversee the proceedings. While the overall procedure remains the same, the consequences of such allegations of misconduct can be severe, particularly if the company has not been proactive in safeguarding the interests of its creditors and has waited for the creditors to take legal action.
· Member’s Voluntary Liquidation
In Member’s voluntary liquidation, a company closes down orderly. This usually happens when a company has served its purpose and is no longer needed. This happens when the company is solvent; or in simple words, the company is capable of paying the remaining debt. It is a quicker and easier way to close a company than when it is insolvent.
· Purpose Of Liquidation
Liquidation aims to raise the necessary cash to deal with the company’s debts and the creditor. This is to ensure that all the company assets are used to clear the claims of the creditors. When done, the liquidators remove the company’s name for registration. This means the company exists no more.
When Do You Need A Liquidator In Your Company?
First, you need liquidators when your company is on the verge of bankruptcy. Generally, a liquidator is assigned under two circumstances:
- When the shareholders of your company are bankrupt.
- When one of your creditors accuses your company of insolvency, the court orders liquidation.
The Duties And Responsibilities Of A Liquidator
The liquidators’ power depends upon the type of liquidation they are administering. The primary responsibility of a liquidator is to convert the remaining assets of a company into cash and distribute it among the creditors. However, the role of a liquidator also involves several administrative duties such as managing paperwork, overseeing the actions of the company’s directors, arranging meetings between the directors and creditors, and performing other related tasks. In some cases, the liquidator may also be granted full authority over the company’s operations.
Some of the specific duties of a liquidator
- The liquidator accesses the company’s total debt and decides which debt should be paid in full. He has the power to decline some claims of creditors.
- They also close any contract that the company is bound to.
- The liquidator also calculates the worth of remaining assets to maximize the capital raise.
- They also inform the creditor about the process and take their advice where needed.
- He distributes the company’s help to creditors for solving their debt.
- Liquidators have to make a report on the reasons behind the demise of the company. This report goes to the secretary of state if they find any fraud.
- The liquidator dismisses the company.
So, this is the overall process of liquidation and the roles of the liquidators in it. No one wants to dissolve their own company. But sometimes liquidation is the best option you have for your company and for you to make a new start. However, we often miss the golden hours of liquidating the company assets. Hence, if you have any doubts regarding the liquidation of your company, we suggest you to consult a professional as per your requirement.