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What is the role of a liquidator in an insolvency procedure?

A liquidator’s overall role during an insolvency procedure is to ensure that an equitable distribution of assets takes place from the insolvent company to its creditors. The liquidator must act in the interests of creditors as a whole, rather than specific groups, and on appointment takes control of the company from its directors.

If company directors have already had dealings with an insolvency practitioner (IP) prior to the liquidation, the same IP may subsequently be voted in as liquidator by creditors. In these cases the IP’s duty of care as liquidator is to the creditors, however, not to the company or its directors.

Therefore, the insolvency practitioner will be unable to provide advice to directors, for example on negotiating a personal guarantee, as they are actually acting for the lender (creditor) concerned.

Begbies Traynor is available for appointment as liquidator. Our licensed insolvency practitioners have vast experience and in-depth knowledge across all industries.

Reasons why a company might be unable to pay their VAT

  • Creditors’ Voluntary Liquidation (CVL) - The reason why a company cannot pay sometimes lies with a failure to register for the tax at the correct time. The subsequent and often substantial bill can cause severe financial difficulties for a hitherto profitable company.
  • Compulsory liquidation - This is a process which usually results when one or more creditors apply to the court for a company’s winding up, although it can also be started by the company and its directors. In the first instance the Official Receiver is appointed as liquidator, but if there are company assets to distribute, creditors can generally appoint their own choice of office-holder. 

Maximising creditor returns – a major part of the liquidator’s role

Assessing creditor claims

Initially, the liquidator will assess creditors’ claims (proof of debt forms). Claims will be accepted in full or in part, or rejected. In some cases the liquidator may seek a compromise with the creditor.

Valuation and realisation of assets

By obtaining a professional valuation of company assets, the liquidator maximises returns for creditors. A liquidator can also apply to the court for the reinstatement of company property.

In these cases the assets may have been sold for less than their true value, and the transactions were therefore detrimental to creditors. Dealings such as these are known as antecedent transactions, and in addition to selling assets at an undervalue, include preferential payments where ownership of an asset is transferred to one creditor in preference over others.

Distribution of assets to creditors in the ‘prescribed order’

The ‘prescribed order’ is a statutory hierarchy of repayment following the liquidation of a company. At the top of the hierarchy is the cost of liquidation, followed by secured and preferential creditors, and those with a floating charge. Unsecured creditors are placed at the bottom of the list.

Part of the liquidator’s role is to communicate with creditors via a creditors’ committee if one has been set up, providing them with information as necessary throughout the liquidation process.

A liquidator’s investigative role

Investigating the conduct of directors in the time leading up to insolvency is an important aspect of the liquidator’s role. The overall aim in doing so is to protect the public from unscrupulous directors moving from one company to the next, taking on debt without responsibility, and causing financial difficulty for their creditors. 

The possibility that antecedent transactions such as those mentioned previously have taken place, forms part of the investigation. The liquidator will also interview the company’s directors to establish whether they continued to trade, knowing that the company was insolvent.

The office-holder must submit a report to the Secretary of State if they believe that wrongful or fraudulent trading has occurred, and if proven, this can lead to disqualification for directors.

Begbies Traynor is the UK’s leading professional services consultancy. We are available for advice on any aspect of insolvency, and also for appointment as liquidator. Contact one of our expert team of licensed insolvency practitioners to arrange a free same-day consultation at one of 44 offices nationwide.

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Insolvency Practitioners Association Institute of Chartered Accountants in England and Wales R3: Association of Business Recovery Professionals ICAEW Business Advice Service Turnaround Management Association ACCA (the Association of Chartered Certified Accountants) ICAS | The Institute of Chartered Accountants of Scotland

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