What is the role of a liquidator?
The role of a liquidator is to investigate the financial affairs of an insolvent company. The liquidator will secure and realise all company assets, make all recoveries, distribute resources to creditors, conduct all relevant investigations into the financial affairs of the company, make distributions to creditors (and distribute any surplus to shareholders), inform both creditors and the Australian Securities and Investments Commission (ASIC) of their actions, and arrange the de-registration of the company.
Essentially, a liquidator’s role is to fully wind up and bring the company’s affairs to an end.
Responsibilities of the liquidator
The liquidator is an independent party which creditors rely on to advise them about dividend prospects.
A Liquidator must:
- Conduct investigations into the financial affairs of a company;
- Act impartially;
- Act with skill and diligence; and
- Avoid placing themselves in a position where personal interests could conflict with professional duties.
A liquidator should realise all assets and discharge all the liabilities, so far as the assets allow. He or she should be alert to any misfeasance by officers, former officers or promoters and, so far as the assets allow, proceed to recover any preferences or any damages for which any such persons may be liable.
Where the history of the company shows a likelihood of some misfeasance, the liquidator will investigate (insofar as the assets allow) to see whether officers or former officers have infringed the requirements of the law.
If the assets available (pending any recovery for misfeasance, etc) do not allow full compliance with the relevant duties, the liquidator should then report the circumstances, an opinion of the likelihood of non-compliance and the reasons for this opinion, to the interested creditors and to the Australian Securities and Investments Commission.
The statutory requirements of the liquidator are to:
- Cause the company’s property to be collected and applied in discharging the company’s liabilities.
- Ensure that the property of the company shall be applied in satisfaction of its liabilities.
The directors’ powers cease upon the liquidator’s appointment. The directors are required to assist the liquidator in all matters arising in the liquidation and are to deliver to the liquidator all assets and records of the company.
The directors are also required to lodge a Report on Company Activities and Property (ROCAP) with the liquidator within five days of the their appointment in a court liquidation, or within seven days in a creditors voluntary winding up. A ROCAP is a document that details the assets and liabilities of the company at the date of the liquidator’s appointment.
When the liquidation process comes to a close, the role of a liquidator is to report to the Australian Securities and Investments Commission (ASIC) and creditors on their findings and apply to deregister the company as the final step.
To whom must the liquidator report?
The liquidator must report and provide information to all stakeholders, including creditors, shareholders, directors and to ASIC.
Creditors and Shareholders
In a Court liquidation it is invariably the rights of creditors that are paramount (i.e. not shareholders), as it is the creditors who have lost money.
The liquidator is therefore obligated to report to creditors and as a consequence there are rights that are available to creditors.
The first point of call is often through the Committee of Inspection.
The function of the Committee is to advise and assist the liquidators and/or to supervise the conduct of the liquidation.
The Committee’s views must be taken into account by the liquidator, but the liquidator has the right to make the final decision.
The Committee has general control and has the power to convene a committee meeting. It also has the power to:
- Replace a member;
- Approve or reject liquidator’s remuneration;
- Authorise the liquidator to enter into long term arrangements over three months;
- Compromise a debt that is due to the company and is greater than $100,000; and
- Direct investment of surplus funds.
The Committee would generally be elected at the first meeting of creditors. While there is no limit on the number of members, a committee typically comprises of three to five members.
Formal meeting procedures as for creditors meetings apply, however the usual 14 days notice is not required when calling the meeting.
The liquidator will become the chairperson and must keep minutes of the meeting. These minutes must record who is present and be filed with the Australian Securities and Investments Commission within one month of the meeting.
Committee members are not able to obtain personal gain by virtue of the position they hold. If they do, then a creditor may apply to have the transaction set aside. The Court has the power to approve transactions before they are entered into, which can only go ahead if approved. To be eligible to be a Committee member, creditors must be represented:
- By an attorney; or
- By a person authorised in writing by the creditor.
Reports to Creditors
Creditors will receive at least two reports from the liquidator. An ‘initial report’ is likely to be no more than a brief introduction and advice of the liquidator’s appointment.The second or subsequent reports should be in more detail comment on:
- Strategy of realisation of assets;
- Success in realisation of assets;
- Statement of the liquidation’s receipts and payments;
- The liquidator’s fees and outlays incurred; and
- The outcome of investigations.
Meeting of Creditors
The role of a liquidator is to keep creditors updated on the progress or any new or unforeseen developments. When this happens the liquidator may wish to call a creditors’ meeting. This meeting provides an opportunity for liquidators to find out creditors’ wishes on a particular matter or seek approval of the liquidator’s fees.
Meetings can be called if the liquidator wants to:
- Report on matters of substance;
- Seek creditors’ agreement to a course that the liquidator proposes to undertake;
- Obtain funding;
- Obtain approval of remuneration (if there is no Committee);
- Seek information;
- Obtain authority to enter into long term agreements longer than three months, and
- Compromise a debt due to the company exceeding $100,000.
The liquidator can call a creditors’ meeting at any time, but must call a meeting if:
- A committee of inspection directs it (where there is a committee of inspection);
- Creditors pass a resolution requiring the liquidator call a meeting;
- At least 25% in value of creditors direct the liquidator to do so in writing; and
- Less than 25% but more than 10% in value of creditors direct the liquidator to do so in writing and they provide security for the costs of calling and holding the meeting.
Calling of the Meeting
Creditors must be given a meeting notice of 10 business days, which can be sent by personal delivery, prepaid post, or document exchange (DX).
A quorum must be present before a meeting can start. A quorum is at least two or more people attending in person, by teleconference or via proxy. If only one person is entitled to vote (e.g. there is only one creditor), then a quorum consists of that person.
Resolutions will be decided on voices, unless a poll is called for before the result of the voices is declared by:
- The Chairperson;
- Two persons participating in the meeting; or
- By a person holding at least 10% of total voting rights of all people entitled to vote at the meeting.
If a Poll is conducted, a resolution is carried if supported by a majority in number and value. The Chairperson has a casting vote.
An appeal against a decision by the chairperson to accept or reject a proof of debt or claim for voting purposes may be made to the court within 10 business days after the decision.
A liquidator must send to the creditor with the notice of meeting a proxy form.
Creditors can appoint any person over 18 years of age to act as the proxy. If the proxy holder is the liquidator, or an employee or his/her partner, then the proxy cannot be used for the approval of the liquidator’s remuneration if it is to be paid out of the assets of the company.
A company can only participate in a meeting by appointing a proxy. The convenor of the meeting can require proxies to be lodged prior to the commencement of the meeting, but not more than 48 hours before its commencement.
Who May Vote?
Creditors must have lodged with the Chairperson details of their debt (a proof of debt) before they can vote. The liquidator may require a formal proof of debt. In addition, the Chairperson must admit the debt for voting purposes, before the creditor can participate in the meeting.
Creditors cannot vote in respect of:
- An unliquidated debt or claim;
- A contingent debt or claim; and
- A debt where the value of it has not been established unless a just estimate of its value has been made.
Secured creditors can only vote for the shortfall difference between the value of their security and the amount owed.If a secured creditor votes in respect of his or her full debt or claim, the creditor will be taken to have surrendered its security.