Law is a system of rules and guidelines which are enforced through social institutions to govern behavior, wherever possible. It shapes politics, economics and society in numerous ways and serves as a social mediator of relations between people. Contract law regulates everything from buying a bus...
, a liquidator
is the officer appointed when a company goes into winding-up or liquidation
In law, liquidation is the process by which a company is brought to an end, and the assets and property of the company redistributed. Liquidation is also sometimes referred to as winding-up or dissolution, although dissolution technically refers to the last stage of liquidation...
who has responsibility for collecting in all of the assets of the company and settling all claims against the company before putting the company into dissolution
In law, dissolution has multiple meanings.Dissolution is the last stage of liquidation, the process by which a company is brought to an end, and the assets and property of the company redistributed....
In most jurisdictions, a liquidator's powers are defined by statute. Certain powers are generally exercisable without the requirement of any approvals; others may require sanction, either by the court, by an extraordinary resolution
In business or commercial law, an extraordinary resolution or special resolution is a resolution passed by the shareholders of a company by a greater majority than is required to pass an ordinary 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).
The liquidator would normally require sanction to pay creditor
A creditor is a party that has a claim to the services of a second party. It is a person or institution to whom money is owed. The first party, in general, has provided some property or service to the second party under the assumption that the second party will return an equivalent property or...
s and to make compromises or arrangement with creditors. Without sanction (unless it is a compulsory winding-up) the liquidator may carry on legal proceedings and carry on the business of the company so far as may be necessary for a beneficial winding-up. Without sanction, the liquidator may, inter alia
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, sell company property, claim against insolvent contributories, raise money on the security of company assets, and so all such things as may be necessary for the winding-up and distribution of assets.
In compulsory liquidation, the liquidator must assume control of all property to which the company appears to be entitled. The exercise of his powers is subject to the supervision of the court. He may be compelled to call a meeting of creditors or contributories when requested to do so by those holding above the statutory minimum.
In a voluntary winding-up, the liquidator may exercise the court's power of settling a list of contributories and of making calls, and he may summon general meetings of the company for any purpose he thinks fit. In a creditor's voluntary winding-up, he must report to the creditor's meeting on the exercise of his powers.
The liquidator is generally obliged to make returns and accounts, owes fiduciary duties to the company and should investigate the causes of the company's failure and the conduct of its managers, in the wider public interest of action being taken against those engaged in commercially culpable conduct.
A liquidator who is appointed to wind-up a failing business should act with professional efficiency and not exercise the sort of complacency that might have caused the business to decline in the first place.
Where, during the investigation of the affairs of the company, the liquidator uncovers wrongdoing on the part of the management of the company, he may have power to bring proceedings for wrongful trading
Wrongful trading is a type of civil wrong found in UK insolvency law, under s 214 Insolvency Act 1986. It was introduced to enable contributions to be obtained for the benefit of creditors from those responsible for mismanagement of the insolvent company....
or, in extreme cases, for fraudulent trading
Fraudulent trading is an insolvency law concept, and in particular a UK insolvency law concept. It refers to a company that has carried on business with intent to defraud creditors.-Law:...
However, the liquidator cannot normally enter into a champertous
Champerty and maintenance are doctrines in common law jurisdictions, that aim to preclude frivolous litigation. "Maintenance" is the intermeddling of a disinterested party to encourage a lawsuit...
agreement to assign the fruits of an action to a third party offering to finance the litigation, if the right to said action accrued solely as a result of the liquidator's statutory duties, instead of being a right to action that had existed before the liquidator came on the scene.
The liquidator may also seek to set aside transactions which were entered into by the company in the time immediately preceding the company going into liquidation where he forms the view that they constitute an unfair preference
An unfair preference is a legal term arising in bankruptcy law where a person or company transfers assets or pays a debt to a creditor shortly before going into bankruptcy, that payment or transfer can be set aside on the application of the liquidator or trustee in bankruptcy as an unfair...
or a transaction at an undervalue
An undervalue transaction is a transaction entered into by a company who subsequently goes into bankruptcy which the court orders be set aside, usually upon the application of a liquidator for the benefit of the debtor's creditors....
Depending upon the type of the liquidation, the liquidator may be removed by the court, by a general meeting of the members or by a general meeting of the creditors.
The court may also remove a liquidator and appoint another if there is "cause shown" by the applicant for his removal. It is not normally necessary to demonstrate personal misconduct or unfitness for this purpose. However, it will be enough if the liquidator fails to display sufficient vigour in the discharge of his duties, for instance, by not establishing the current assets and recent trading of the company or in not attempting to secure favourable terms for the company in relation to the disposal of its assets.