The role of a liquidator in insolvency

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Updated: 24th February 2021

What does a liquidator do when a company is insolvent?

The liquidator of a limited company must be a licensed insolvency practitioner and their job is to bring about the end of a company in the correct and proper manner. Their duties leading up to the closure of a business are varied and include ensuring all creditors’ claims are dealt with appropriately, the company’s assets are liquidated, monies due in to the company are collected, and satisfying all administrative duties to bodies such as HMRC and Companies House. Here is a breakdown of what an insolvent liquidation entails:

Assess the situation

When an insolvency practitioner is appointed to deal with an insolvent company, their first task will be to assess the situation and decide what the most appropriate course of action for your company is. The IP will take the time to understand your position and the events leading up to your current difficulties, before assessing whether the company is likely to have a viable future.

Rescue or closure?

If it is decided that the company, in spite of its current financial woes, is fundamentally a good business with a strong potential for future success, then a range of business rescue options will be considered. These are likely to include administration or alternatively a Company Voluntary Arrangement (CVA) where the company will enter into a legally binding agreement with its creditors for more favourable payment terms to allow the company to continue to trade. A CVA can only be entered into with the agreement of the creditors so the insolvency practitioner must put together a convincing proposal setting out how the creditors will be better off financially if the CVA was to be implemented.

An insolvency practitioner’s primary aim when dealing with an insolvent company is to rescue the business and preserve jobs. However, insolvency practitioners have a duty towards the company’s creditors and should they feel that continuing to trade is likely to worsen their position then the IP will instead facilitate the closure of the business. This will be achieved through a process known as a Creditors’ Voluntary Liquidation (CVL).

Liquidating company assets

As part of a CVL, all assets of the company must be recorded, collated, and sold with the intension of raising as much money as possible for the benefit of the company’s outstanding creditors. Assets can take a variety of forms, including:

  • Property
  • Vehicles
  • Machinery
  • Cash in hand
  • Cash at bank
  • Stock – both raw and finished
  • Fixtures and fittings
  • Debtor book

The insolvency practitioner will arrange for the assets to be valued by an independent surveyor and then begin to market the assets for sale. Depending on the assets involved, it may be the case that the directors wish to purchase these back from the company rather than have them sold to a third party. This can be done providing they are sold at market rate and the sale is officially documented by the insolvency practitioner.

Dealing with creditors

When a company is insolvent it is usually the case that it has a number of creditors all vying for the money they are owed. One of the insolvency practitioner’s most important roles is to liaise with these outstanding creditors during the liquidation process. Depending on the scale of the insolvent company’s problems, and the length of time it has been experiencing financial difficulties, some of these creditors could be irate and impatient to see some return on the debt. Due to this, dealing with creditors often represents a time-consuming part of the work an insolvency practitioner carries out during an insolvent liquidation.

Distributing proceeds to creditors

Once all company assets have been liquidated and the proceeds collected, attention can then be turned towards distributing these funds amongst the outstanding creditors. This is not as simple as splitting the money equally between each individual or company that is owed something. Instead each creditor must be separated out into various classes based on the terms they lent the company money. This creditor class determines the order in which funds are allocated and therefore the likelihood of them receiving anything from the process. The order of preference is as follows:

  • Secured creditors holding a fixed charge – Such as mortgage providers and asset-based lenders. They will typically have a secured charge over property, vehicles, or machinery.
  • Preferential creditors – This includes employees of the company.
  • Secured creditors holding a floating charge – Floating charges are held over assets such as stock and fixtures and fittings.
  • Unsecured creditors – This is usually the biggest pool of creditors. It includes suppliers, landlords, and HMRC, as well as popular forms of borrowing such as credit cards and unsecured loans.
  • Shareholders – These come last in the pecking order, by which point there are often no funds remaining to allow for even a partial payment.

Provide regular reports on the progress

Regular reports and updates must be filed with Companies House detailing the progress of the case. In straightforward liquidations this may take the form of one report once it has concluded; however, more complex administrations may take place over several years and would require annual progress reports to be compiled along with an update on the costs incurred.

Investigate director conduct

Insolvency practitioners are duty bound to investigate the conduct of the directors leading up to the company’s insolvency. Any concerns must be reported to the Insolvency Service who will decide whether further action should be taken. In serious cases this could lead to the director(s) being disqualified from assuming that role again at another company for a period of up to 15 years.

Concerned about your company?

If your business is struggling financially and you would like to learn more about how an insolvency practitioner could help, contact Real Business Rescue today. With over 70 licensed insolvency practitioners with 100 UK offices, you are never far away from expert help and guidance. Call 0800 644 6080 today and arrange a free no-obligation consultation at your nearest office.

Jonathan Munnery


0800 644 6080
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