ROLE AND POWERS OF A LIQUIDATOR

The Duties of a Liquidator

The Corporations Act outlines the powers of the liquidator. These powers include all powers invested in the directors of the company, and additionally, the power to:

  • investigate and examine the affairs of a company
  • identify transactions that are considered void
  • examine the directors and others under oath, for example, through a public examination
  • realise any assets
  • conduct and sell any business of the company
  • admit debts and pay dividends.

A liquidator controls the affairs of the company by:

  • identifying and protecting the assets of a company
  • realising those assets
  • conducting investigations into the financial affairs of a company and any suspicious transactions
  • making appropriate recoveries
  • issuing reports to ASIC and creditors
  • making distributions to creditors and shareholders (if a surplus exists)
  • applying to ASIC to have the company deregistered.

The liquidator is also duty-bound to make several investigations during the liquidation process. They are required to investigate:

  • why the company is insolvent
  • when the company became insolvent
  • if there is a potential insolvent trading claim against any/all of the directors
  • if there are any recoverable preferential payments to creditors
  • if there are any possible offences committed by offices of the company
  • if any void transactions can be annulled
  • if any other recoveries may be made.

 

Trading While in Liquidation

A liquidator may continue trading a company if it is in the creditors’ best interest. A trade on is considered if there is a prospect to sell the business as a going concern, or to complete and sell any work-in-progress. A liquidator is obligated to end trading and wind up company affairs as quickly but as commercially responsible as practical.

Directors to Assist the Liquidator

The directors must give all information about the company’s financial affairs and provide a Report as to Affairs (detailing the assets and liabilities of the company as at the date of appointment of the liquidator) and assist the liquidator when reasonably asked. The directors must also deliver all company books and records and cooperate with the liquidator throughout the liquidation process. The Corporations Act contains various offence provisions that apply to directors who do not cooperate with liquidators.

Effect of Liquidation on Secured and Unsecured Creditors

Secured creditor’s rights are not affected by liquidation. Commonly, secured creditors allow liquidators to sell the assets while recognising the secured creditor’s rights. A secured creditor can prove for any shortfall in the liquidation after their security is realised.

Unsecured creditors lose their right to recover money from the company, but gain a right to prove for dividends in the liquidation.

Liquidator's Payment of Dividends

The ultimate role of the liquidator is to realise the company’s assets and take all possible steps to recover sufficient funds to distribute the proceeds among creditors.

The liquidator must pay dividends in the order of priorities set out in section 556 of the Corporations Act. These priorities include: 

  1. costs and expenses of the liquidation
  2. costs of the applicant creditor (if the company was wound up by the court)
  3. employee entitlements
  4. other unsecured creditors.

Timing of Liquidation

There is no set time limit for a liquidation. The liquidation lasts for as long as necessary to complete all the required tasks of liquidation; however, a liquidator will usually try to finalise the liquidation as soon as possible.

The liquidation ends when the company is dissolved by a court order on the application of the liquidator, the company is struck off the register of companies by ASIC at the request of the liquidator, or the winding up is set aside or stayed by the court.

Learn more about the role and powers of a liquidator and how it relates to you.

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