What is a Liquidator and what is his responsibility?

dirtonth

Hi,

I am interested in knowing more about liquidators. What is their role and responsibility?

Thanks!

The_Pretender

Upon appointment of a Liquidator the directors lose their powers. The Liquidator is essentially the CEO of the Company until it is formally dissolved, and is personally liable for any actions taken after his/her appointment.

They have two key roles, number one being to dispose of any assets that the Company had in order to pay creditors. Number two is to investigate the collapse of the Company and find out whether the directors acted "honestly and responsibly".

Under the Companies Act 2014 the Liquidator is obliged to restrict directors. However, 6 months from the date of appointment (and every six months thereafter if an extension is sought) the Liquidator must complete a Section 682 report. In this, the Liquidator can apply for relief from their duty to restrict the directors, and the report will contain either reasons for seeking relief or reasons why they should be restricted.

dirtonth

Thanks for this response. 
What actions could the liquidator take if he finds that the collapse of the Company was not fair and honest ? 
Let us say I had a company and I had some debt and pending matters with clients. I devalue the assets to nothing, and write them off so they are no longer on the books. Have my business go in liquidation, but have someone else take over the "value-less" assets, and register a new business to continue operate from the same premises, and I, as the previous director, register myself as your employee to keep on running the business. The business is in county A, the liquidator is in county B. Everything looks fine on paperwork. Even if the liquidator finds this malpractice, what is his duty then?

The_Pretender

If the Liquidator's finds that you were not honest and responsible, and that there's very valid reasons as to why not, then at the very least you're looking at a restriction. If you're restricted as a director, it means you won't be allowed be a director of a company for a set period of time unless you keep a certain amount of your own money invested in issued share capital (usually about €100k).

While a Liquidator is usually an accountant, they are also people who will have some common sense. If they see a machine bought for €50k on the fixed asset register and then 2 years later it's gone or sold to a new entity (especially a related party i.e. the phoenix company) for little to nothing, they'll definitely be asking questions about it.

What you're talking about is complete disregard for your duties as a director, and in this case the Liquidator will more than likely look to lift the corporate veil and make you personally liable for the full debts of the company. In this case, you'd quite possibly be looking at a disqualification too. It's important to note that these measures cover all kinds of directors such as shadow directors and de facto directors - people who aren't directors on paper, but act with the power of a director or have significant enough influence over the company's directors. The county in which the company is based has no baring on matters whatsoever.

In short, if the Liquidator finds you were grossly irresponsible in your running of the company, they'll seek to remove all protection offered by incorporating a limited company.

That's not to say you can't start again, more often than not in my experience directors have plans to go back into business and will often purchase assets from the Liquidator. This is usually favourable for the Liquidator, as the assets will be sold at the "going concern" value (based on an independent valuation of course) i.e. without the need to hold a private auction or to pay auctioneers to remove the assets and sell them publicly.

Edit: In relation to your comment about the company being in county A and the Liquidator being in County B, it doesn't matter where they are. They won't be dealing with just paperwork, they very much have to be sales people disposing of assets. Upon appointment, the Liquidator will straightway put insurance in place and secure the assets of the company either through members of his staff or through his auctioneers, usually on day of his appointment or in the days following.

dirtonth

The_Pretender wrote: »

That's not to say you can't start again, more often than not in my experience directors have plans to go back into business and will often purchase assets from the Liquidator. This is usually favourable for the Liquidator, as the assets will be sold at the "going concern" value (based on an independent valuation of course) i.e. without the need to hold a private auction or to pay auctioneers to remove the assets and sell them publicly.

Why would I go back in the same business if we've put up the business for liquidation? Wouldn't that look like just to create a clean-sheet, writing off liability and starting afresh? You would still have The location and you cannot value clientele, and the fact that it looks part of a going concern, isn't that part of the goodwill which is repayable to the creditors of the liquidated company ?

The_Pretender

There'll often be a lapse of time before they go back into business, they may put the Company into liquidation in January but not start trading again until 6 months later when the Liquidator has completed most of his investigation work. In this case, it's hard to argue that you're taking over all the old business when you've left a significant amount of time pass without operating. The only way to deal with this would be to ban someone from operating in a certain industry completely after the liquidation. If ABC Ltd went into liquidation but they then started trading as ABC Group Ltd, there would be issues there.

It's really a case by case basis - take a menswear shop in a small town in the who traded through the recession and the drastic decrease in trade by increasing debt, cutting costs and reducing staff levels. The owner will usually invest significant amounts into the business (in many cases their life savings) but now there is to much legacy debt for the company to operate profitably.

The Liquidator will prepare his report to the ODCE outlining the background of the directors, his findings and all other relevant information. It's then ultimately up to the ODCE to either agree with the Liquidator or request further investigation or disagree entirely.

dirtonth

The_Pretender wrote: »

The Liquidator will prepare his report to the ODCE outlining the background of the directors, his findings and all other relevant information. It's then ultimately up to the ODCE to either agree with the Liquidator or request further investigation or disagree entirely.

Would the report be publicly available ?

The_Pretender

dirtonth wrote: »

Would the report be publicly available ?

No. However, at the Creditors Meeting the Liquidator will look to appoint a Committee of Inspection made up of members/creditors of the Company. The Committee will be asked to bring to the Liquidators attention any information that they feel would be valuable in his investigations.

Prior to submitting the report the report to the ODCE, the Liquidator will call a meeting of the COI to show his findings and ensure that the Committee are satisfied with what he is askig the ODCE for i.e. relief from his obligatio to restrict or not.

Prior to finalising a COi report, I make sure to go back over the minutes of the creditors meeting, committee meetings etc. as it is imoortant to ensure you've answered any querires raised. The Committee has other powers also (the Liquidator has to request permission from the Committee to do many things) however the above is the main.