Define: Liquidator

A liquidator is an individual or entity appointed to oversee the winding up or dissolution of a company or organisation. Their primary responsibility is to manage the company’s assets, settle its debts and liabilities, and distribute any remaining funds or assets to creditors and shareholders in accordance with legal requirements. Liquidators play a crucial role in the closure of a company, ensuring that the process is conducted fairly and transparently while maximising value for all stakeholders involved. Depending on the specific circumstances, a court, shareholders, or creditors may appoint them.

In law, a liquidator is the officer appointed when a company goes into winding-up or liquidation who has responsibility for collecting all of the assets of the company and settling all claims against the company before putting the company into dissolution.

Powers

In most jurisdictions, a liquidator’s powers are defined by statute. Certain powers are generally exercisable without the requirement of any approvals; others may require sanction, either by the court, by an extraordinary resolution (in a members’ voluntary winding-up), or by the liquidation committee or a meeting of the company’s creditors (in a creditors’ voluntary winding-up).

The liquidator would normally require sanction to pay creditors and to make compromises or arrangements with creditors. Without sanction (unless it is a compulsory winding-up), the liquidator may carry on legal proceedings and carry on the business of the company so far as may be necessary for a beneficial winding-up. Without sanction, the liquidator may, inter alia, sell company property, claim against insolvent contributories, raise money on the security of company assets, and do all such other things as may be necessary for the winding up and distribution of assets.

Duties

In compulsory liquidation, the liquidator must assume control of all property to which the company appears to be entitled. The exercise of his powers is subject to the supervision of the court. He may be compelled to call a meeting of creditors or contributories when requested to do so by those holding above the statutory minimum.

In a voluntary winding-up, the liquidator may exercise the court’s power of settling a list of contributories and of making calls, and he may summon general meetings of the company for any purpose he thinks fit. In a creditor’s voluntary winding-up, he must report to the creditor’s meeting on the exercise of his powers.

The liquidator is generally obliged to make returns and accounts, owes fiduciary duties to the company, and should investigate the causes of the company’s failure and the conduct of its managers in the wider public interest of action being taken against those engaged in commercially culpable conduct.

A liquidator who is appointed to wind up a failing business should act with professional efficiency and not exercise the sort of complacency that might have caused the business to decline in the first place.

Misconduct

Where, during the investigation of the affairs of the company, the liquidator uncovers wrongdoing on the part of the management of the company, he may have the power to bring proceedings for wrongful trading or, in extreme cases, for fraudulent trading.

However, the liquidator cannot normally enter into a contractual agreement to assign the fruits of an action to a third party offering to finance the litigation.

The liquidator may also seek to set aside transactions that were entered into by the company in the time immediately preceding the company going into liquidation, where he forms the view that they constitute an unfair preference or a transaction at an undervalue.

Removal

Depending on the type of liquidation, the court, a general meeting of the members, or a general meeting of the creditors may remove the liquidator.

The court may also remove a liquidator and appoint another if there is “cause shown” by the applicant for his removal. It is not normally necessary to demonstrate personal misconduct or unfitness for this purpose. However, it will be enough if the liquidator fails to display sufficient vigour in the discharge of his duties, for instance, by not establishing the current assets and recent trading of the company or by not attempting to secure favourable terms for the company in relation to the disposal of its assets.

This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.

This glossary post was last updated: 13th April 2024.