In any liquidation, the primary role of the Liquidator is to realise assets in order to make a distribution to creditors and / or members.

However, in a voluntary liquidation, the Insolvency Practitioner will have been contacted by the Directors in the first instance in order to advise on the Company’s financial position and the options available. Because of this, the Insolvency Practitioner will ultimately have 2 differing roles, the first in respect of the advisory work prior to liquidation and the second as formally appointed Liquidator.

A good Insolvency Practitioner will make clear to you what their duties are in respect of each of these roles and will also ensure that you understand how these duties impact on the advice given to you.

Pre-Liquidation Advice

Where an Insolvency Practitioner is engaged to provide advice to a Company and its Directors prior to a formal Liquidation, the Insolvency Practitioner’s duty is to the Directors and the Company first and foremost save that any advice given must not conflict with their subsequent duties to creditors as Liquidator.

Summary of the Liquidators' Role

In simple terms the Liquidators' role is to:

• Realise assets and distribute funds to creditors if realisations are sufficient
• Investigate the Company's affairs
• Report on the conduct of the Directors
• Deal with creditor queries and statutory reporting

The scope of the pre-liquidation advice will be set out in the Insolvency Practitioner’s engagement letter with your Company but typically encompasses:

• Advising the Directors on the financial control and supervision of the Company up to the date of the passing of a resolution for winding up. This would include providing the Directors with clear and detailed information about their duties and responsibilities in the run up to liquidation.
• Assisting the Directors in passing the resolution to wind-up the Company and in seeking a decision of creditors on the appointment of Liquidators. This would include preparation of all statutory notices and financial reports required for the liquidation to take place.

Role Once Appointed as Liquidator

Once appointed as Liquidator, the Insolvency Practitioner’s duty is to the creditors and can be split into 4 main arears being realisation of assets, investigation of the Company’s affairs, reporting on the conduct of the Directors and dealing with creditor queries and statutory reporting.

Realisation of Assets

The primary role of the Liquidator is to realise assets in order to make a distribution to creditors. This will typically involve steps such as:

• Instructing agents to value and market the tangible assets of the Company such as its plant and machinery;
• Liaising with the Company’s debtors to secure payment of outstanding debtor invoices;
• Marketing the Company’s goodwill and intellectual property.

When looking to secure a sale of the Company’s assets, the Liquidator’s duty is to maximise the value of the assets as a whole. This can often mean seek a buyer for all or part of the Company’s assets as a collective lot as this can be of greater value than selling the assets on a break up basis by auction.

The Company’s former Directors are permitted to make an offer for the assets of the Company if they so wish and often this can result in greater value being achieved in the Liquidation as the assets can be worth more to the Directors due to their familiarity with the business and its processes. Any such offer would be subject to review by the Liquidator’s selling agent and would be disclosed to creditors in the event the sale took place.

If there are sufficient funds left from asset realisations after allowing for all of the costs incurred, the Liquidators will make a payment to creditors based on the class of creditor and the amounts owed to them. This is known as a dividend to creditors.

In a solvent liquidation, having paid all of the creditors, the Liquidators will also then make a payment to the shareholders.

Investigations

In insolvent liquidations, the Liquidators are required to conduct investigations into the financial affairs of the Company and the conduct of its Directors.

The purpose of these investigations is to establish whether there are any transactions or areas of misconduct which could give rise to financial recoveries in the liquidation. These transactions are covered in greater detail on our Directors’ Duties page but can include:

• Selling of assets for less than they are worth.
• Payment of dividends to shareholders where there were insufficient funds to do so.
• Payment of one creditor in preference to others.
• Overdrawn Directors’ loans.
• Trading whilst insolvent.

Whether the Liquidator takes recovery action in respect of any items uncovered in their investigations and the type of recovery action taken comes down to the nature of the things uncovered, the value of potential recoveries and the Directors’ means to repay should the Liquidator be successful in enforcing an action. This is a commercial decision for the Liquidator based on the circumstances and will differ in each and every case.

Reporting on the Conduct of Directors

Another major part of the Liquidator’s role is to prepare a report on the conduct of the Directors. This report is prepared for all Directors and Shadow Directors in office in the 3 years preceding liquidation and is submitted to The Insolvency Service who then decide whether disqualification action should be taken.

The conduct report is submitted in all insolvent liquidations and does not automatically imply any wrongdoing on the part of the Directors.

You can find out more about the Liquidator’s conduct report and the Company Directors’ Disqualification Act on our being a Director again page.

Dealing With Creditor Queries and Statutory Reporting

The final part of the Liquidator's role is to deal with creditor queries and correspondence and to issue statutory reports.

Typically, creditors may have questions about the liquidation process and the financial return to them. They may also need more specific items to be dealt with such as return of financed assets or completion of insurance claim questionnaires. Creditors may also have specific concerns in respect of the management of the Company or the conduct of the Directors which the Liquidator will take into account when preparing their report on the conduct of the Directors.

The Liquidator is also required to report to creditors annually on the progress of the liquidation and again immediately prior to the closure of the liquidation.

How We Help

If you are looking to place your Company into a formal insolvency process it is important to make sure that you get the right advice. This is particularly true if your Company is experiencing financial difficulties as you are likely to be under pressure from creditors and may be beginning to suffer with the stress of the situation. In these circumstances, finding supportive and well structured advice as soon as possible ensures that you have the maximum number of options available and can also go some way to alleviating some of the pressure you are under.

At The Insolvency Helpdesk, we aim to provide you with online access to the information you need to understand your duties as a Director and the potential pitfalls to be aware of. You can then call us for advice specific to your business circumstances in the knowledge that you will better understand these options and the advice given. We operate throughout the UK and all advice is provided by Licensed Insolvency Practitioners with years of practical experience.

Whatever your situation, getting high quality professional advice as soon as possible will give you the knowledge and support needed to help you meet your statutory duties as a Director. We will always work with you to help you achieve the best outcome you can in the most affordable way possible so please call us free on 0800 066 3122