Role of Liquidator in your company?

Liquidation is a process of winding up of a company which involves the selling of assets in order to pay the said liabilities and other obligations.
Shivani Kharai
March 16, 2021

Liquidation is a process of winding up of a company which involves the selling of assets in order to pay the said liabilities and other obligations.

Who is a Liquidator?

A liquidator is a person or an entity which liquidates the assets of the company. A liquidator manages the entire liquidation process. It is appointed when a company goes into liquidation or is wound up by the court in a compulsory liquidation process. The liquidator is legally authorized to act on the behalf of the company in various capacities. Liquidator basically refers to an officer who is specially appointed to wind up the affairs of a company when the company is closing typically when the company is going bankrupt.

Assets of a company are sold by the liquidator and the funds from that are used to pay off the company’s debts. In some jurisdictions, a liquidator may also be called a trustee, such as a bankruptcy trustee. Once the liquidator is assigned, he or she then takes over control of the company’s assets. These are then pooled together and sold. Cash received from the proceeds are then used to pay outstanding debt held by unsecured creditors.

Who can be a Liquidator?

The liquidator must be an adult. A child under 18 who has married or been completely appointed by a court decision can also be a liquidator. The notary who drew up the will can act as the liquidator, but only if the liquidation is done free of charge. A liquidator can be named in the will of a deceased as well. If a deceased does not mention a person in as a liquidator in a will then the heirs will automatically be the liquidator. And yes, a will can mention more than one liquidator.

Role of a liquidator

A role of a liquidator is to investigate the financial management of the insolvent company. The liquidator will secure and recover all the assets of the company, pay creditors, conduct all relevant investigations into the financial management of the company.

The Liquidator will also have the responsibility for a critical investigation of the books and records of the company, to establish when and under what circumstances the company became insolvent. Basically, a liquidator’s role is to fully wind up and bring the company’s affairs to an end.

A liquidator must

  • Investigate the financial flow of a company.
  • Act impartially
  • Act with skill
  • Avoid placing themselves in a position where personal interests could conflict with professional duties.

Duties of a liquidator

The duties of the liquidator are:

· Duty to provide notice

The first duty which a liquidator has to fulfil is that of providing notice of his appointment. Section 178 (b) of the Income Tax Act clearly conveys that who has been appointed as the liquidator shall, within thirty days give notice of his appointment to the Assessing Officer who is authorized to assess the income of the company.

· Duty to investigate into the affairs of a company from its inception

The liquidator may obtain all the necessary information regarding financial management and affairs of the company which he reasonably requires in the course of winding up under Section 277 (5) (ii) of Companies Act, 2013.

· Duty to recover and realize the company’s assets

Duty of recovery of the assets of the company. All his powers are designed to ensure the effective discharge of this duty under Section 277(5) (iii) of companies act, 2013.

· Duty to form winding-up committee and to make reports

It is a duty of liquidator to make an application to the tribunal for the constitution of a winding-up committee under Section 277(4) of Companies Act, 2013.

The winding-up committee shall consist of the following persons:

  • Official liquidator attached to the tribunal
  • Nominee of secured creditors
  • A professional nominated by the tribunal.

A liquidator is an agent of the company with a duty to act responsibly. The purpose of appointing a liquidator is to wind up a failing or bankrupt business and so he should act with professional efficiency. He must not exercise the sort of contentment that might have caused the business to decline in the first place.

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