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Can A Creditor Cancel A Liquidation?

This guide considers can a creditor cancel a Liquidation.

In this article you’ll learn about:

  • The position of creditors in a Liquidation.
  • How a Liquidator can deal with a cancel request from a creditor.
  • What other options are available to creditors.

Let’s get moving.

Cancel A liquidation

Can A Creditor Cancel A Liquidation Overview?

The matter of whether or not a creditor can cancel a Liquidation can sometimes arise if creditors wish to conclude matters and draw a line under their interest.

Creditors are entitled to opt-out of receiving information on a Liquidation, but this will not prejudice their entitlement to a dividend.

Creditors’ Entitlement To Cancel A Liquidation

A creditor has no power to actively cancel a Liquidation.  Liquidation is an insolvency procedure and insolvency procedures are a class action in which all creditors come together.

When a company goes into Liquidation, the assets are entrusted in effect in the hands of the Liquidator.  The process of Liquidation relieves the creditors of the Company (that is going into Liquidation) of the ability individually to recover their debts from the Company’s property.  That normal procedure that applies outside of insolvency is superseded by what is a collective operation of the creditors banding together as a class. Any action undertaken by the Liquidator to recover money and realise assets is for the benefit of the creditors as a whole.

A Liquidator has a fiduciary duty to act in the best interests of the creditors as a whole and does not owe a similar duty to creditors on an individual basis.

For those reasons, if any individual creditor seeks to cancel a Liquidation whilst it is in process and not fully wound up, then they are unable to do so.

Creditors’ Relationship With Liquidator In A Liquidation

Creditors may not always be happy with the way in which the Liquidation process works, but it is set out in legislation. It also is legislation that determines who gets paid first in a Liquidation and the statutory order of payment in insolvency proceedings which determines how the costs and expenses get paid.

It is normal for the costs and expenses of a Liquidation to be repaid before any payment goes to the unsecured creditors. Except if a creditor is a secured creditor, ordinarily they will rank behind all of the costs and expenses of a Liquidation.

The reason for that position is that Liquidation is an insolvency procedure that arises when a company is insolvent and unable to pay its debts as and when they fall due.  In such an instance, the creditors have already suffered the potential loss of some or all of the debt that is due to them by the company.

Nevertheless, the assets and other property of a company that has gone into Liquidation (such as Creditors Voluntary Liquidation or Compulsory Liquidation) still have to be dealt with and the party that has to deal with that is the Liquidator. That is to ensure an orderly winding up of the company’s affairs.

In the circumstances, it is perhaps difficult to imagine a situation where creditors would be able to appoint a Liquidator to act over an insolvent company without giving him or her priority to recover fees ahead of themselves.

It might be difficult to find a Liquidator willing to act and the reason for that is if a supplier to a company knew in advance that they might not get paid a substantial proportion or perhaps even all of their debt, they would be unlikely to supply their services.  The position of the Liquidator is conceivably no different.

Liquidator Ethical Responsibility

A Liquidator has to act independently with ethical Insolvency Practitioner duties in the operation of the Liquidation, which means they must not permit themselves to be “instructed” by any one individual creditor.

The desire of a creditor to cancel the Liquidation is not necessarily a way of dealing with their potential unhappiness with an Insolvency Practitioner or otherwise with any aspect of the Liquidator’s dealings.

If a creditor has a complaint or is unhappy with the conduct of a Liquidator, there is a remedy available to him to potentially replace the liquidator pursuant to Rule 15.18 of the Insolvency (England and Wales) Rules 2016. In addition, they also can, if they so wish, issue a formal complaint to the liquidator’s regulatory body or apply to the Court for direction.

What Next?

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Disclaimer: Can A Creditor Cancel A Liquidation?

This page Can A Creditor Cancel A Liquidation? is not legal advice and should not be relied upon as such. This article Can A Creditor Cancel A Liquidation? is provided for information purposes only. You can contact us on the specific facts of your case to obtain relevant advice via a Free Initial Consultation.

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