Liquidator: Powers, Duties, and Examples

What Is a Liquidator?

A liquidator is a person or entity that liquidates something. A liquidator is specially appointed to act on behalf of a company in various capacities. They are legally empowered to wind up a company's affairs when it is closing—typically when the company is going bankrupt. When things get to this point, the liquidator may represent companies in lawsuits or sell off their assets for cash or equivalents. The resulting funds are used to pay off the company's debts. Liquidators may also defend companies in lawsuits

Understanding Liquidators

A liquidator is a person with the legal authority to act on behalf of a company before it closes. are generally assigned by the court, unsecured creditors, or the company's shareholders. They often step in when a company declares bankruptcy. Their primary function is to generate cash for a variety of reasons, including debt repayment.

A liquidator has several key responsibilities. The first is to take control of the organization's assets, which are pooled together and sold off individually. Cash from the sale proceeds is then used to pay off the outstanding debt held by unsecured creditors. Another key function of liquidators is to bring and defend lawsuits. Other actions include collecting outstanding receivables, paying off bills and debts, and finishing other corporate termination procedures.

A liquidator's authority or power is defined by the laws where the role is assigned. They may be granted complete authority over all business matters until the assets are sold and the debts are all paid off while others are granted liberties while under the court's supervision.

The liquidator has a fiduciary and legal responsibility to all parties involved—the company, court, and creditors. Considered the go-to person when it comes to making any decisions about the company and its assets, the liquidator must keep them under their control to ensure they are properly valued and dispersed after being sold. The liquidator issues any correspondence and holds meetings with the company and its creditors to ensure the liquidation process goes through smoothly.

Liquidators and the Liquidation Process

Many retailers go through the liquidation process under a liquidator to dispose of their assets because of a looming bankruptcy. The liquidator assesses the business and its assets and may decide when and how to sell them. New inventory shipments are stopped and the liquidator may plan for sales of the current stock. Everything under the retailer's banner, including fixtures, real estate, and other assets is sold. The liquidator organizes the proceeds and pays off the creditors.

Liquidators are not only assigned to retailers. Other businesses that face trouble may require a liquidator. They may be required to deal with issues after a merger takes place when one company buys out another. For instance, when a merger takes place, one company's information technology department may become redundant. The liquidator may be assigned to sell off or divide the assets of one.

Becoming Liquidator

Liquidators typically have a degree or background in finance and/or accounting. This allows them to review and file financial reports and other key documents, such as tax returns. They can also use their academic and professional experience to help them value assets.

These professionals must also possess the following skills:

• Negotiation
• Dealing with difficult situations
  
• Analytical skills
• Fraud detection
• Problem-solving
• Organizational skills
• Risk management
  

Since they have a fiduciary responsibility, liquidators must also act ethically and responsibly to ensure they follow regulations and meet the needs of the company.

How Liquidators Are Paid

Liquidators charge fees for their services, This cost varies depending on the size of the business, the complexity of the case, and the time needed to complete the job. The Insolvency Act 1986 specifies the absolute priority (also known as the liquidation preference) with which stakeholders are repaid in the event of a bankruptcy or liquidation.

According to the law, liquidators are always paid first. Payments are then made to senior secured creditors, unsecured and subordinated creditors, and preferred shareholders. Common shareholders are generally the last creditors who are paid during the liquidation process.

Real-World Example of Liquidators

There are many examples of liquidators taking charge of company affairs. This occurred with shoe retailer Payless. Saddled with debt, the company filed for Chapter 11 in 2017 with plans to liquidate almost every store it owned in the United States and Canada.

Although Payless managed to restructure and survive that period, it wasn't fully out of the lurch. It filed for bankruptcy again in February 2019, saying it would close all of its retail locations across North America, which amounted to about 2,100 stores. The company ended up selling its merchandise at a discount to consumers.

The Bottom Line

Liquidators step in when companies are in financial distress—usually when they're about to go bankrupt. Assigned by the court, creditors, or shareholders, this individual is responsible for taking charge of a company's assets, selling them off, and paying its creditors. In other cases, they may bring legal claims or defend companies in lawsuits. Because they have a fiduciary responsibility, liquidators must act in the best interests of the company, court, creditors, and shareholders.