What is the role of a liquidator?
The role of a Liquidator is much the same as that of a trustee throughout the course of a bankruptcy. The liquidator will investigate the financial affairs of the company and ascertain whether or not improper or illegal transactions have been made: this could include actions such as void transactions or preferential payments, insolvent trading or offenses committed by company officers.
The Liquidator will also have the responsibility over a thorough investigation of the books and records of the company, to establish when and under what circumstances the company became insolvent. If books and records are unable to be supplied to the Liquidator, the company is then deemed to be insolvent for the entirety of the time that relevant and appropriate records cannot be provided.
The Liquidator will realise all assets, make all recoveries, distribute resources to creditors, conduct all relevant investigations into the financial affairs of the company and distribute any surplus to shareholders. He or she will then report to the Australian Securities and Investments Commission (ASIC) and creditors on their findings and apply to deregister the company, which is the final step of the process.
Responsibilities of the Liquidator
The liquidator has the responsibility of bringing the company’s affairs to an end and is accountable to:
- the courts,
- 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 him or herself in a position where personal interests could conflict with professional duties.
A liquidator should get in 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:
- s478 requires a Court liquidator to: “Cause the company’s property to be collected and applied in discharging the company’s liabilities”.
- s501 requires a liquidator in a voluntary liquidationto ensure that “The property of the company shall … be applied in satisfaction of its liabilities”.
The directors’ powers cease upon the appointment of a liquidator. 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 as to Affairs’ with the liquidator within 14 days of the liquidator’s appointment in a Court liquidation (s475), or within 7 days in a creditor’s voluntary winding up (s497). A ‘Report as to Affairs’ is a document that details the assets and liabilities of the company at the date of the liquidator’s appointment.
To whom must the liquidator report?
The liquidator must report to the creditors and shareholders and to the Australian Securities and Investments Commission.
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 – s479(1) and s479(4).
The Committee has the following powers:
- General Control. s479
- Convene a Committee Meeting. s549
- Right to replace a member. s550
- To approve or reject liquidator’s remuneration. s473
- Authorise the liquidator to enter into long term arrangements over 3 months. s477(1)(a)(2B)
- Compromise a debtthat is due to the company and is greater than $100,000. s477(2A)
- Right to direct investment of surplus funds. s543
The liquidator must have regard to the Committee’s directions.
The Committee would generally be elected at the first meeting of creditors. While there is no limit on the number of committee members, it would generally be for 3, 4, or 5 persons.
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.
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.
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.
Reports to Creditors
Creditors will almost invariably receive a written report, or a number of reports, from the liquidator.
Contents of reports:
- An Initial Report is likely to be no more than a brief introduction and advice of the liquidator’s appointment.
- Subsequent reports should be in more detail commenting on:
- strategy of realisation of assets
- success in realisation of assets
- summary of Report as to Affairs
- statement of Receipts and Payments
- details of the basis of the liquidator’s charges, and
- results of investigations.
- Verbal reports are given to creditors when:
- they contact the liquidator’s office directly
- at a meeting of creditors.
Meeting of Creditors
If required to do so by at least 10% of creditors, then a liquidator must convene a meeting of creditors. The costs will be borne by the party requiring the meeting, unless either the Court or the Committee of Inspection approved the cost as being an expense of the liquidation.
If the liquidator decides to call a meeting then the cost will be an expense of the liquidation.
Other than the 10% requirement above, there is no compulsory obligation on a liquidator to call a meeting.
HOWEVER, the liquidator is likely to call a meeting 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 – s477(2B), and
- compromise a debtdue to the company exceeding $100,000 – s477(2A).
Calling of the Meeting
Creditors must be given 14 days notice of the meeting, which can be sent by:
- personal delivery
- prepaid post
- fax, or
- DX – document exchange.
From 1 January 2008, creditors may also receive notices by electronic means if they so request – s600G.
Within 7 days before the meeting, the notice of meeting must be advertised in a daily newspaper circulating in a state where business was conducted by the company at any time during the two years immediately before the meeting.
Other than to
- elect a chairperson
- accept proofs of debt, and
- adjourn the meeting,
a quorum must be present before a meeting can start. If the number of persons entitled to vote is 2 or more, then a quorum is at least 2 of those persons (personally or by proxy). If only one person is entitled to vote, then a quorum consists of that person.
The meeting must start within 30 minutes of the time nominated in the notice of meeting otherwise it is adjourned to:
- the same day, time and place the next week, or
- the day the Chairperson nominates being not less than 7 days and not more than 21 days after the day of the adjourned meeting.
Creditors may force an adjournment of a meeting to another day and place.
Resolutions will be decided on voices, unless a poll is called for before the result of the voices is declared by:
- the Chairperson
- 2 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.
A liquidator must send to the creditor with the notice of meeting a form of proxy.
Creditors can appoint any person over 18 years of age to act as the proxy. If the proxyholder 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 lodgement of a proxy by facsimile is in order, so long as the original is also lodged within 72 hours after lodging the faxed copy.
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 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 debtor claim
- a contingent debtor claim, and
- a debtwhere 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 difference between the value of their security and the amount actually owed.
If a secured creditor votes in respect of his or her debt or claim, the creditor will be taken to have surrendered its security.
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