What Happens when a Liquidator is Appointed?
The liquidator is given full control of the assets and undertaking of the company. This control is however subject to the rights of creditors who have securities over the assets and undertaking.
The liquidator has a period of 5 working days in which to prepare a statement of the company’s position and report to creditors. During this period the liquidator will normally determine whether or not to continue to trade. This decision will be coloured by the fact that the liquidator will be personally liable for any debts incurred through trading whilst the company is in liquidation.
The liquidator will take control of all assets of the company including bank accounts, and request the bankers to dishonour all cheques subsequent to his appointment. The liquidator will either dismiss any remaining staff, or negotiate arrangements for their continued employment by him.
The liquidator has powers to disclaim any contracts which he deems to be onerous. This will normally be exercised to terminate rental agreements and other contracts for the provision of services.
When the assets of the company have been realised, the proceeds after the costs of the liquidation will be distributed to creditors in the order of priorities laid down in the Companies Act. Naturally, where assets are secured to creditors the proceeds from those assets up to the level of the debt secured be passed to those creditors, subject to the priority provisions of the Seventh Schedule of the Companies Act.
Employees are granted priority under the Seventh Schedule up to a designated amount for services provided in the 4 months prior to liquidation and holiday pay. The limit is amended annually by Parliament. However, the priority of employees is equal to that of Inland Revenue for GST and payroll related deductions. As a result, it is usual for a liquidator to hold off any distribution to employees until certain that sufficient has been realised from the assets of the company to meet the preferential clams of employees and Inland Revenue.