What is a liquidator? And what do you need to know about how to deal with them?

A liquidator is appointed to control a company when it has become insolvent and is being wound up. In the most basic terms, they have a responsibility for collecting all of the assets of the company and settling all claims against the company before dissolving it.

What powers does a liquidator have?

In Australia, a liquidators powers are defined by the Corporations Act 2001 (Cth). These powers are usually capable of being exercised with the approval of a court although the powers of a liquidator are almost always subject to a responsibility to the creditors of a company, the directors of a company or some other interest holder. There are some powers which can only be exercised by an extraordinary resolution (in a members’ voluntary winding up) or the liquidation committee or a meeting of the company’s creditors (in a creditors’ voluntary winding-up).

What are the duties of a liquidator?

There are a few duties which a liquidator must undertake. They need to assume control of the property of a company in a liquidation and the exercise of this power is subject to the supervision of a court. Creditors with a holding above the statutory minimum may also require the liquidator to call a creditor’s meeting which leads to a vote on the future of the company and how it is to be dissolved. In a winding up, he will also report to the creditor’s meeting and report on the statements and affairs of the company. Also, the liquidator owes fiduciary duties to a company and is bound to investigate causes of the company failure and the conduct of managers when a company has failed.

What is misconduct by a liquidator?

If a liquidator uncovers wrongdoing on the part of the management of the company, he may have power to bring proceedings for wrongful trading or, in extreme cases, for fraudulent trading. However, the liquidator cannot normally benefit financially from this type of arrangement and the such a thing might be considered champerty if the liquidator ends up benefiting from this. If it is serious enough, a liquidator can also be removed by a court or by a general meeting of the members. This can occur simply at the choice of the creditors in a creditor’s meeting and it is not necessary to show misconduct.

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