A company may be liquidated when it cannot pay its debts, with a ‘liquidator’ appointed to carry out the task of determining why the company failed and maximising the possible return to creditors.
A liquidator works in much the same way as a trustee in bankruptcy except that the role applies to companies not individuals.
The job of a liquidator is to:
- Investigate the financial affairs of a company
- Determine whether any illegal or improper activity has occurred.
- Maximise the return to creditors.
If a company is being liquidated because it is insolvent the liquidator is answerable to the creditors, and is required to:
- Collect, Protect and Realise the company’s assets
- Report back to creditors about the company’s affairs
- Look into any possible offences by those people running the company and inform the Australian Securities and Investment Commission (ASIC)
- Distribute the proceeds of any asset sales to creditors normally in order of security
- On completion of the liquidation, apply to have the company de-registered.
Responsibilities of the Liquidator
The liquidator has the responsibility of bringing the company’s affairs to an end, and in this process is accountable to:
- the Court;
- creditors; and
- the shareholders.
Creditors include employees, secured and unsecured creditors.
The duties of a liquidator include the following:
- to investigate the affairs of a company from its foundation onwards;
- to act impartially;
- to act with skill and diligence;
- to avoid placing himself in a position where his interest conflicts or is likely to conflict, with his duties.