Role of the liquidator

Role of the liquidator

Contents

Appointment of liquidator

When the court makes an order for the winding-up of a company, the liquidation is deemed to have begun on the date the petition was presented to the court.

The Official Receiver will then become the liquidator and will remain in that position unless the creditors of the company decide to appoint an insolvency practitioner of their choice to be the liquidator.

The OR may require directors to prepare a statement of affairs. They have to report to creditors with respect to winding up and state of company's affairs and will invite all creditors to submit a proof of debt.

The Official Receiver will if necessary arrange the first creditor's meeting within 12 weeks of the liquidation. If they decide not to have a creditor's meeting, they will notify the court and the creditors. At a first meeting of the creditors they may appoint an insolvency practitioner to be the liquidator and if they do that, they may also establish a liquidation committee. The liquidation committee will receive reports on the progress of the liquidation from the liquidator and will assist them in their task. They will also approve the liquidator's remuneration. The liquidation committee may report to the other creditors.

When a winding-up order is made, the directors' powers to manage the company cease and the liquidator takes control of the company. The liquidator can act on behalf of the company in the same way that the directors previously could but with added powers. Contrary to the assets in a bankruptcy, the assets of the company do not vest in the liquidator as trustee. The assets remain vested in the company, unless the liquidator applies to court for a vesting order. However, the liquidator has all the required powers to deal with the assets of the company to enable them to fulfil their duties as liquidator.

Powers and duties of the liquidator

The primary duty of the liquidator is to increase the assets of the company, collect in all the assets and realise it at the best possible price so that maximum funds will become available for distribution to the creditors.

The liquidator will send a notice of their appointment to every known creditor of the company and will call on creditors to submit proof of debts owed to them by the company, if not already done by the OR. The liquidator will either accept those debts as proven in full or in part, reject it or compromise it.

Powers under section 131 of the Insolvency Act 1986 to obtain a statement of the company's affairs

Where the court has made a winding-up order or appointed a provisional liquidator, the official receiver may require some or all of the persons mentioned below to make out and submit to them, before the end of the period of 21 days beginning with the day after that on which the prescribed notice of the request was given to them, a statement in the prescribed form as to the affairs of the company:

  • those who are or have been officers of the company;
  • those who have taken part in the formation of the company at any time within one year before the relevant date;
  • those who are in the company's employment, or have been in its employment within that year, and are in the official receiver's opinion capable of giving the information required;
  • those who are or have been within that year officers of, or in the employment of, a company which is, or within that year was, an officer of the company.

The statement of affairs must show:

  • particulars of the company's assets, debts and liabilities;
  • the names and addresses of the company's creditors;
  • the securities held by them respectively;
  • the dates when the securities were respectively given; and,
  • such further or other information as may be prescribed or as the official receiver may require.

Powers under sec 133 of the Insolvency Act 1986 with regard to the public examination of officers of the company

The official receiver may at any time before the dissolution of the company apply to the court for the public examination of any person that:

  • is or has been an officer of the company;
  • has acted as liquidator or administrator of the company or as receiver or manager; or,
  • not being one of the above persons, is or has been concerned, or has taken part, in the promotion, formation or management of the company.

Unless the court otherwise orders, the official receiver shall make this application if they are requested in accordance with the rules to do so by:

  • one-half, in value, of the company's creditors; or
  • three-quarters, in value, of the company's contributories.

On an application the court shall direct that a public examination of the person to whom the application relates shall be held on a day appointed by the court. The person so ordered shall attend on that day and be publicly examined as to the promotion, formation or management of the company or as to the conduct of its business and affairs, or their conduct or dealings in relation to the company.

The following may take part in the public examination of the person and may question them concerning any of the above issues:

  • the official receiver;
  • the liquidator of the company;
  • any person who has been appointed as special manager of the company's property or business;
  • any creditor of the company who has tendered a proof; or,
  • any contributory of the company.

Powers under section 235 of the Insolvency Act 1986 to obtain the co-operation of persons related to the company

Each of the persons mentioned below is, under threat of a fine, compelled to:

  • give to the liquidator such information concerning the company and its promotion, formation, business, dealings, affairs or property as the office-holder may reasonably require; and,
  • attend on the liquidator at such times as the latter may reasonably require.

The persons referred to above are:

  • those who are or have at any time been officers of the company;
  • those who have taken part in the formation of the company at any time within one year before the company entered liquidation;
  • those who are in the employment of the company, or have been in its employment (including employment under a contract for services) within one year before the company entered liquidation, and are in the office-holder's opinion capable of giving information which they require;
  • those who are, or have within one year before the company entered liquidation been, officers of, or in the employment (including employment under a contract for services) of, another company which is, or was within one year before the company entered liquidation, an officer of the company in question; and,
  • any person who has acted as administrator, administrative receiver or liquidator of the company.

Powers under section 236 of the Insolvency Act 1986 to inquire into company's dealings

The liquidator may apply to court to order the appearance before it of:

  • any officer of the company;
  • any person known or suspected to have in their possession any property of the company or supposed to be indebted to the company; or,
  • any person whom the court thinks capable of giving information concerning the promotion, formation, business, dealings, affairs or property of the company.

The court may require any such person as is mentioned above, under sanction of arrest or seizure, to submit to the court an account of their dealings with the company or to produce any books, papers or other records in their possession or under their control relating to the company or the matters concerning the promotion, formation, business, dealings, affairs or property of the company.

Powers with regard to reviewable transactions

The liquidator has the power and duty to review the company's past transactions and to take appropriate action to ensure that they maximise the available assets for the benefit of the creditors. To do that the liquidator has wide powers such as the following:

  • Disclaiming

Where a transaction or asset is of such a nature that it is unprofitable, not readily saleable, give rise to an obligation to pay money or perform an onerous act, the liquidator can by notice to the interested party disclaim that property or transaction. However, if the interested party has applied to the liquidator to decide whether they will be disclaiming the transaction or property and the liquidator has for 28 days not reacted to that, the liquidator can't thereafter disclaim it. If the liquidator does disclaim a transaction or asset any person suffering a loss or damage as a result will be regarded as a creditor of the company and will be able to prove in the liquidation for that loss or damage, but they will not have any other remedy. A contract is not unprofitable just because it is financially disadvantageous or because a better deal could have been achieved. The critical feature is that the performance of future obligations would prejudice the officeholder's obligation to realise the assets and make a distribution to creditors. Disclaiming ends any ongoing obligations on the part of the insolvent company.

  • Setting aside

The liquidator can apply to court to have certain transactions entered into by the company at an undervalue or preferences given by the company set aside so that the company will be in the same position it would have been in had the transactions never taken place.

On such an application, the court can make such order as it thinks fit for restoring the position to what it would have been if the company had not given that preference or had not entered into that transaction at an undervalue including the following:

  • require any property transferred as part of the transaction, or in connection with the giving of the preference, to be vested in the company;
  • require any property to be re-vested in the company if it represents in any person's hands the application either of the proceeds of sale of property so transferred or of money so transferred;
  • release or discharge (in whole or in part) any security given by the company;
  • require any person to pay, in respect of benefits received by them from the company, such sums to the office-holder as the court may direct;
  • provide for any surety or guarantor whose obligations to any person were released or discharged (in whole or in part) under the transaction, or by the giving of the preference, to be under such new or revived obligations to that person as the court thinks appropriate;
  • provide for security to be provided for the discharge of any obligation imposed by or arising under the order, for such an obligation to be charged on any property and for the security or charge to have the same priority as a security or charge released or discharged (in whole or in part) under the transaction or by the giving of the preference; and,
  • provide for the extent to which any person whose property is vested by the order in the company, or on whom obligations are imposed by the order, is to be able to prove in the winding up of the company for debts or other liabilities which arose from, or were released or discharged (in whole or in part) under or by, the transaction or the giving of the preference.
  • Assigning

Liquidators can also assign causes of action with respect to these reviewable transactions by virtue of Small Business, Enterprise and Employment Act 2015 (SBEEA 2015).

  • Preference and undervalue

To be reviewable transactions must have happened:

  • in the case of a preference, within the 6 months (or 2 years if a connected person) preceding the onset of insolvency; and,
  • in the case of an undervalue, within 2 years preceding the onset of insolvency.

A transaction at undervalue would be one providing for the company to receive no consideration or a consideration that is much less in money's value than the consideration given by the company and the company either was insolvent at the time of the transaction or as a result of the transaction became insolvent. If the transaction involved a connected person, then insolvency is presumed. A transaction at an undervalue will however not be set aside if at the time the transaction was entered into the company did so in good faith believing that was to the benefit of the company.

A person, being one of the company's creditors or a surety or a guarantor for any of the company's debts or other liabilities, would've been given a preference if they are, as a result of the transaction, in a better position than they would have been in the event of the insolvent liquidation of the company had the transaction not taken place and the company was influenced by a desire to prefer that person and the company as a result became insolvent or was insolvent at the time.

  • Extortionate credit

Where the company had entered into an extortionate credit transaction within the 3 years preceding the liquidation the liquidator can apply to court to have the terms of that transaction varied, any security held released and any amounts paid refunded.

A transaction is extortionate if, having regard to the risk accepted by the person providing the credit:

  • the terms of it are or were such as to require grossly exorbitant payments to be made (whether unconditionally or in certain contingencies) in respect of the provision of the credit; or,
  • it otherwise grossly contravened ordinary principles of fair dealing.

When the liquidator makes an application to court in respect of an extortionate credit transaction the court will presume, unless the contrary is proven, that the transaction was extortionate.

  • Floating charges

The liquidator can claim that a floating charge over any assets of the company is invalid to the extent that it was not given in consideration of new money being provided to the company at the time that floating charge was created. However to be reviewable the time at which the floating charge was created must be:

  • in the case of a charge which is created in favour of a person who is connected with the company, at a time in the period of 2 years ending with the onset of insolvency;
  • in the case of a charge which is created in favour of any other person, at a time in the period of 12 months ending with the onset of insolvency if at that time the company is unable to pay its debts or becomes unable to pay its debts as a result of the charge;
  • in either case, at a time between the making of an administration application in respect of the company and the making of an administration order on that application; or,
  • in either case, at a time between the filing with the court of a copy of notice of intention to appoint an administrator under paragraph 14 or 22 of Schedule B1 of the Insolvency Act 1986 and the making of an appointment under that paragraph.
  • Intended to defraud

Where a transaction was intended to defraud creditors by putting assets out of reach of the creditors it can be set aside by the court. The court can make such order as it thinks fit, including:

  • restoring the position to what it would have been if the transaction had not been entered into; and,
  • protecting the interests of persons who are victims of the transaction.

A transaction will be regarded as intended to defraud creditors if:

  • the company makes a gift to the other person or enters into a transaction with the other on terms that provide for the company to receive no consideration or a consideration the value of which, in money or money's worth, is significantly less than the value, in money or money's worth, of the consideration provided by the company; and,
  • it was entered into for the purpose of putting assets beyond the reach of a creditor of the company or for the purpose of prejudicing the interests of a creditor in relation to a claim which they are making or may make.

Other powers

Some of the other powers the liquidator has to enable them to fulfil their duties are:

  • To carry on the business of the company to the extent that it is necessary to wind up the company;
  • To sell any assets of the company either privately or by public auction;
  • To sign any documents on behalf of the company and execute all deeds;
  • To raise money on the security of any of the company's assets;
  • To do all such things as may be necessary for the winding up of the company's affairs and distribution of its assets.

A detailed list of the powers of the liquidator can be found in Schedule 4 of the Insolvency Act.

Proof of debts in the liquidation

Provable debts

To be recognised as a provable debt in the liquidation the claim must be payable in money (or money's worth) and:

  • be a debt the company was subject to when it entered the insolvency process; or,
  • arise from an obligation incurred prior to the date of the liquidation order (or the administration order if the liquidation was preceded by an administration). A company would be subject to an obligation for purposes hereof if it was under some form of legal relationship or duty that carried with it a real prospect of a payment liability arising.

This means that the debt can either be due at the date of the liquidation order (or the administration order if the liquidation was preceded by an administration) or it can fall due thereafter as long as the obligation which resulted in the debt occurred before that date. If this is not the case the claim will not be capable of being proved as a claim against the company in liquidation.

The debt or liability can be contractual, a tortious liability, a liability created by statute, etc. It doesn't matter whether the debt or liability is certain or contingent and whether the amount is fixed or only capable of being determined by rules or opinion.

Any interest due on a liquidation debt with regard to the period prior to the liquidation (or the administration if preceded thereby) can be proved as part thereof.

Proving a debt

To prove a debt in a liquidation the creditor must complete a Proof of debt in the prescribed Form 4.25.

In this form the creditor will state how and when the debt was incurred, the total amount of the claim, the value of any security held and the amount of any un-capitalised interest. Details of any documentary evidence that proves the claim must be supplied, but no documents in support of the claim need be attached as the liquidator will call for those if needed.

After proofs of debt have been lodged with the liquidator they will be available to be inspected by:

  • any creditor that has submitted their proof (unless that was wholly rejected);
  • any contributory of the company; and,
  • any person acting on behalf of either of the above people.

If the liquidator agrees thereto, a creditor that submitted a proof may at any time thereafter withdraw it or change the amount claimed.

If the OR received any proofs before the liquidator was appointed they must send them with an itemised list to the liquidator. The same will happen should a new liquidator be appointed.

The liquidator can admit a proof either for the whole or part of the amount claimed. If they reject all or part of the amount claimed, they have to provide the creditor that submitted the proof with written reasons for doing so. If this creditor is not satisfied with the reasons they may, within 21 days from the date of receiving the reasons, appeal to the court to have the decision reversed or varied.

Any other creditor or a contributory may also appeal the decision of the liquidator on any proof and may do so to the court within 21 days of becoming aware of the liquidator's decision. However, if the application is made by a contributory of the company the court will not disallow the proof unless the contributory can show that there will be a surplus of assets to which the company would be entitled.

If the liquidator is of the opinion that a proof has been improperly admitted, they can apply to court to have it expunged or the amount reduced.

Non-provable debt

Certain debts are regarded as non-provable in a liquidation and rank very low for payment from the assets in the company's insolvent estate. Non-provable debts would be claims that have become statute barred and claims that did not arise from an obligation incurred prior to the date of the liquidation order (or the administration order if the liquidation was preceded by an administration). If there were enough money left after payment of any statutory interest any non-provable debts would be paid. An example of a non-provable debt would be where a claim in a foreign currency was proved at the start of the liquidation (or preceding administration) but only paid when there was a negative fluctuation in the exchange rate. The loss so incurred would be regarded as a non-provable debt.

Assets of the insolvent estate

All assets whether tangible or not, in which the insolvent company has a beneficial interest at the date of the liquidation order or in which it obtains a beneficial interest during the period of winding-up, form part of the company's insolvent estate.

The mere physical possession of an asset does not necessarily mean that it forms part of the company's insolvent estate as the asset might be subject to retention of title provisions, a hire purchase agreement or might be held in trust for a third party.

Completion of the liquidation and release of the liquidator

Once the liquidator is satisfied that the liquidation is complete they will call a final meeting of the creditors. At the creditors' meeting they will be given the liquidator's final report and will then determine whether the liquidator may be released from their duties as liquidator.

The liquidator will provide a copy of the final outcome of the liquidation to the court and to the registrar of companies and the company will be automatically dissolved 3 months later.