Liquidation is the process of ceasing the operations and existence of a business. A company goes into liquidation for various reasons. The most common scenario is when a business is unable to pay debts. And so, the assets are distributed to pay creditors. As the dormant company becomes deregistered, the check and balance are given to the shareholders and the directors. There must be an independent assessment of the company affairs, and creditors are given a chance of compensation. Let’s see the role of the liquidator, directors, and creditors when this happens.
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Liquidator
A liquidator appoints an independent liquidator who undertakes the task. This ensures that the shareholders, directors, and creditors are financially protected. The liquidator must find and protect the company assets. They also investigate the company affairs to figure out why it has become insolvent and the offences that may have been committed. The available assets may or may not suffice to pay the debt when the liquidation cost is covered. If they suffice, the sales proceed is distributed amongst creditors and employees. The surplus goes to the shareholders. If there’s a deficit, the creditors pay the cost of liquidation, and the liquidator takes the right steps to recover from assets.
Directors
The directors must fully comply with the liquidation procedure and meet with the liquidator as needed. They must disclose all the information, including the books of accounts. Their advice regarding company properties and location is paramount to the liquidator. Directors must also attend all the meetings with the creditors. Then they need to produce a written report about the finances and property of the business in two weeks if it’s an involuntary liquidation. For voluntary liquidation, they give the same report in a week.
Creditors
The outstanding settlements of unsecured creditors are paid before secured creditors receive their due payments. The liquidator states the creditor’s rights in a legal notice. They must also be informed about the company’s assets and liabilities and the possibility of receiving dividends. Secured creditors have the right to vote at creditor’s meetings if their money has not been paid fully. Hence they can partake in the sharing of dividends just like the unsecured creditors.