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Accounting for Companies – II

notes 2. Creditors can appoint a Liquidation Committee (minimum 3 members, maximum 5) who
assists the Liquidator in determining matters of policy.
3. A meeting of shareholders is convened to pass an extraordinary resolution to place the
company into liquidation and to appoint a Liquidator.

10.2 primary Duties of liquidators

Following are the primary duties of Liquidator:

l z The realisation of the assets to best effect. This is the Liquidator’s overriding responsibility,
and the majority of decisions he takes are to be taken with this in mind.

Example: He takes a major risk if he disposes of the assets on credit and does not get
paid. It is perfectly legal for the assets to be sold to a party connected with the company, although
if he does so he should notify the creditors accordingly. In view of this overriding obligation, it is
generally necessary to obtain a professional valuation of all the assets, particularly if they are to
be sold to a connected party.
The definition of “assets” is wide, and includes rights of action against third parties, and the
potential unravelling of transactions which have already taken place and are considered to
be not in the interest of the company.

l z The agreement of creditors claims.
l z Payment of dividends to the creditors in accordance with their legal rights. Preferential
claims have to be paid in full before any funds are paid to ordinary (or non preferential)
creditors. Where there are insufficient funds to pay any particular class of creditors in full,
he has to make a distribution on a pari passu basis. This is to say that all creditors of a
particular class should receive an equal percentage of their claim.

l z To comply with a plethora of statutory requirements. These are too numerous to fully list
but include the convening of annual meetings of members and creditors, where it is too
soon to close the liquidation. Once the liquidation is ready for closure, and all assets have
been distributed, he must convene final meetings of members and creditors. Three months
after his report of the meetings has been forwarded to Companies House, the company is
deemed to be dissolved by operation of law.
l z No later than six months after his appointment the Liquidator must file a report with the
Secretary of State on the conduct of the directors. In this report he must identify any areas
of their conduct which, in his opinion, render one or more of them unfit to be concerned in
the management of a limited liability company. An adverse report can result in a director
being disqualified from holding office for a period of anything between 2 and 15 years.
l z From the date of his appointment, the powers of the directors cease and pass to the
Liquidator. Responsibility for filing accounts also then rests with the Liquidator, these are
in a different form to those normally filed by the company. The Liquidator’s appointment
means the directors no longer have to file accounts or annual returns, but does not negate
any penalties which have already been incurred for default in that respect.
Other than the passing of the director’s powers to the Liquidator, and the directors having a duty
to assist the Liquidator in his functions, there are few direct consequences which arise simply as
a result of putting the company into liquidation. Any guarantees given by the directors of any of
the company’s debts will, most likely, be immediately crystallised upon liquidation.
Whilst there may be a perceived stigma associated with an insolvent liquidation, the practical
impact of the liquidation depends largely upon the circumstances of the particular case, and the
manner in which the directors have approached their fiduciary duties towards the company, and
whether they have continued the company’s operations to the detriment of the creditors.

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