Liquidator Duties

Statutory and Regulatory Duties

A Liquidator has a number of statutory duties which apply as follows:

  • Duty to call meetings when requisitioned in accordance with the Insolvency Rules.
  • Duty of notification via advertisement of the appointment and the convening of creditors meetings
  • Duty to provide annual progress reports to creditors and file the same at Companies House
  • Duty to provide information to the Official Receiver.
  • Duty to collect the Company’s assets.
  • Duty to realise assets and discharge liabilities.
  • Duty to discover who the creditors of the Company are and the amount of their claims.
  • Duty to meet the prescribed requirements for the provision of security (referred to as a bond) for certain types of losses in relation to the insolvent estate.
  • Duty to manage and administer the insolvent estate and its funds.

 

It is the primary duty of a liquidator of a company to collect its assets with a view to discharging its liabilities to the extent the assets permit. To perform that function the liquidator needs information. The companies legislation has for many years given a liquidator power to obtain it from those who can be expected to have relevant information.

 

A Liquidator is obliged to take custody and control the Company’s property, which includes its books, papers and records as defined in Section 436 of the Insolvency Act 1986. A Liquidator enters office as a relative stranger to the Company and is required pursuant to Statement of Insolvency Practice Number 2 (“SIP 2”) to investigate and reconstitute knowledge of the Company. SIP 2 states as follows:

 

“…an office holder has a duty to investigate what assets there are (including potential claims against third parties including the directors) and what recoveries can be made… locate the company’s books and records (in whatever form), and ensure that they are secured…”

 

In the satisfaction of reconstituting knowledge of the Company a Liquidator is obliged to consider any claims capable of swelling the Company’s assets, including but not limited to consideration of prior transactions that could give rise to an action for recovery. A Liquidator would therefore need to seek to identify, discover and recover the Company’s property. To undertake that exercise a Liquidator will need to obtain the books and records for the Company from its Officers and if relevant its agents. Whilst there are many and varied statutory functions of a liquidator, obtaining the books and records is arguably one of the most important duties.  Without the same it could be difficult to identify the assets with sufficient specificity to enable their recovery.

 

A Liquidator is obliged under SIP 2 to undertake an Initial Assessment (“the Initial Assessment”) of matters which might lead to recoveries for the Company. In consideration of the extent of those investigations the legislation directs that a Liquidator is required to investigate the Company’s affairs, dealings and property. Section 144 of the Insolvency Act 1986 in a Compulsory Liquidation states that: “…the liquidator…shall take into his custody or under his control all the property and things in action to which the company is or appears to be entitled” and in a Creditors Voluntary Liquidation is a power by virtue of Section 166 of the Insolvency Act 1986.

 

In a Compulsory Liquidation a Liquidator is obliged pursuant to Section 143 of the Insolvency Act 1986 to furnish and assist the Official Receiver with such information as may be reasonably required for the purposes of carrying out his or her functions in relation to the winding up.

About the Author:

Elliot Green
Elliot Green FCA FABRP Director and Licensed Insolvency Practitioner

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Books and Records

By virtue of Section 386(3) of the Companies Act 2006 the Company’s accounting records should have contained daily entries confirming details of all monies received and paid by the Company. In addition, the same should have contained a record of the assets and liabilities of the Company.

 

A Liquidator would ordinarily be unable to independently verify what assets exist or should exist without having taken possession of the Company’s books, papers and records to assist a Liquidtor to reconstitute knowledge of the Company.

Fulfiling the Liquidator’s Functions

A Liquidator will usually need to undertake an information gathering exercise to obtain the books and records and also to obtain the Director’s cooperation to obtain data on the Company.

 

A Liquidator in accordance with the Insolvency Practitioner Code of Ethics has a duty of transparency to creditors. However, where such transparency might prejudice the administration of the liquidation, a Liquidator may restrict the extent of that transparency. Transparency has to take into consideration matters of privilege, confidentiality and whether it might compromise investigations and or litigation. Legislation or regulation may also produce a conflict for a Liquidator when considering matters of transparency and generally in such regards, then confidentiality will prevail.

 

There are usually a number of sources of the Company’s books, papers and records to enable a Liquidator to more fully understand the Company’s affairs, dealings and property as follows:

 

  • The Company’s officers such as its Directors.
  • The Company’s accountants who may and often will have acted as its tax agents.
  • The Company’s bankers who may and often will have acted as its agents in the processing of transactions.
  • The Company’s solicitors who may have acted as agents.

 

Once the information has been obtained a Liquidator would usually need to be catalogue and then review it to investigate the Company’s affairs, dealings and property.  

 

If there are any matters that arise from a review of the same that lead a Liquidator to still not have a satisfactory understanding of the Company’s financial affairs or information is incomplete, then it may be necessary for a Liquidator to interview some or all of the Directors. Investigations generally may also involve contacting third parties as part of the process of unscrambling the Company’s dealings.

 

A Liquidator’s investigations ought to typically have regard to any transactions or trading that appear capable of giving rise to greater realisations for creditors. The provisions under the Insolvency Act 1986 and Companies Act 2006 which may enable a Liquidator to effect the same would include but not necessarily be limited to the following: