CHAPTER 4 - CREDITORS VOLUNTARY LIQUIDATION
4.19 SUPERVISING THE LIQUIDATOR
This section and the next (Discipline of the Liquidator, 4.20) survey a number of ways that creditors can supervise the liquidator and, where necessary, motivate, coerce, correct, restrain or reprimand him/her.
In a perfect world such action would never be necessary. And by and large liquidators can be relied upon to do an adequate job. But the standard of their work sometimes leaves a lot to be desired, particularly during an economic slump or recession when there are plenty of corporate failures and personal bankruptcies. (Many liquidators are also trustees in bankruptcy.)
If a liquidator has too much work, the jobs under his/her control might suffer through lack of his/her personal involvement, inadequate supervision of staff and the use of inexperienced
staff. All factors can result in costly behaviour, such as:
mistakes and bad decisions;
reluctance or failure to pursue debts;
reports that are superficial, perfunctory or late;
delays in payment of dividends to creditors; and
poor standards of investigation or no investigation at all.
The importance of a thorough and expert investigation should not be underestimated. It often results in the discovery of assets of considerable value and the recovery of substantial amounts from directors and others (see 4.18, Action Against Directors).
4.19.2 Liquidators reports and letters
Liquidators are not legally obliged to send unsolicited reports to creditors, although most of them do. If there is a committee of inspection, the liquidator may make reports to it instead.
To be of use to creditors a liquidator's report should contain:
A summary of the liquidator's receipts and payments.
A comparison of amounts received with the realizable value of assets as estimated by the directors.
An estimate of the likely dividend to creditors.
Advice as to the liquidator's fee to date.
A brief history of the company, describing its trading activities and disclosing its profits and losses.
The liquidators opinion on why the company failed.
An outline of investigations carried out and the results.
If creditors do not receive reports like this and would like to, or if they need any other information about the liquidation, they should send a written request to the liquidator. In most cases the liquidator will reply, either directly or by way of a report to all creditors. It should be noted that at the annual meetings (see 4.14) the liquidator will give creditors an account of his acts and dealings and can be expected to answer questions put to him/her by creditors.
4.19.3 Accounts of Receipts and Payments
Every six months after appointment and until he/she ceases to act, the liquidator is required to lodge with the Commission a prescribed form containing an account of receipts and payments for the period and a statement of the position in the winding up. Once lodged a copy is available for inspection by any person at the Commission's office on payment of the search fee (presently $7.00). Creditors also have the right to inspect a copy free of charge at the liquidator's office (see 4.16.6, Inspection of Books and Records). After an account has been made up the liquidator is required to advise creditors of this in the next report, notice of meeting or notice of dividend he/she dispatches.
In Chapter 13 the reader will find an example of a liquidator's account with notes explaining the meaning and purpose of some of the information.
The Commission has the power to audit a liquidator's account and statement, but this action is rarely taken. Normally there would need to be grave concerns about the accuracy of an account or serious doubts about the propriety of a liquidator's behaviour. If an audit is conducted the auditor will examine the liquidator's books and records, question him/her and may also inquire into the state and value of the assets. At the end, the auditor prepares a report, a copy of which goes to the liquidator. Creditors can inspect this report at the liquidator's office or, like any member of the public, at the Commission's office.
4.19.4 Documents filed with the Commission
Apart from accounts of receipts and payments, the liquidator files the following documents with the Commission (all of which may be inspected at the Commission's office on payment of the statutory fee, or free of charge at the liquidator's office):
Notice of appointment of liquidator and his/her address.
Notice of any change in the liquidator's address.
Minutes of all meetings.
Return of holding of final meeting, with a copy of the final account.
In addition, the directors file with the Commission the following (copies of) documents relating to the winding up:
Notice of meeting, summary of affairs and list of creditors.
Report as to Affairs.
Resolution for winding up.
4.19.5 Details of work done
Ordinarily a liquidator only supplies creditors with a brief summary of work done. Even this might not be provided if his/her fees have been approved prior to being incurred (see 4.10 Liquidator's remuneration).
The justification for this practice is cost. Compiling a detailed description usually takes a lot of time; and unless there is serious concern about the level of fees nothing is gained by such an exercise.
Nevertheless, most liquidators do keep detailed time sheets which enable them, if required, to show:
the time the liquidator and each class of assistant (e.g., managers, supervisors and clerks) has spent on the job;
what work was done; and
how much time was spent on the various tasks.
If asked by the committee of inspection, a majority of creditors or the Commission, a liquidator would probably compile and disseminate some or all of these details. But he/she is not likely to do it for a single creditor, especially in a complex winding up. That creditor would probably need to apply to the court to review the amount of the liquidator's remuneration (see
4.19.6 Inspection of Books and Records
In a liquidation there are two sets of books relating to the company's affairs:
the books of the company; and
the books of the liquidator.
The books of the company are those which have been kept (created, maintained) by the company up to the date of appointment of a liquidator. The books of the liquidator are those which he/she is
required to create and maintain.
The distinction is important when looking at the right of creditors to inspect those records. Books kept by the liquidator may be inspected by creditors unless the court otherwise orders. But books kept by the company cannot be inspected by creditors without the court's permission. This restriction can hinder creditors who want to take action against a director (see Insolvent Trading 4.18) as some of the books might be needed to show that the company was insolvent when the debt was incurred. For more on this see Chapter 13, Action against Directors.
More on Books of Liquidator
Unless something goes seriously wrong with the liquidation, creditors will not need to inspect the liquidator's books. But if they do, what can they expect to find?
The legal requirements are that the liquidator keep books in which are made:
entries "that are necessary and proper in order to give a complete and correct record of his/her administration of the company's affairs"; and
minutes of proceedings at meetings.
Transforming these requirements into the normal practice, a liquidator's books would include, at a minimum:
record of persons present at meetings,
minute book, and
proof of debt register (or list of creditors' claims);
and, depending on the nature of the company's assets:
plant and equipment register,
inventory lists, and
register of leases and hire-purchase contracts.
In addition, if the liquidator causes the company to carry on business, he/she is required to keep the sorts of books and records that are usually kept by companies operating in that line of business.
Every liquidator would also have: time sheets (see 4.19.5, Details of Work Done); correspondence files; payment vouchers; working papers; and records of telephone calls, informal meetings and interviews. However it is doubtful whether these records can be inspected by creditors because they would not normally be regarded as books.
Creditors should remember that the liquidator can seek an order from the court barring a creditor, or creditors, from inspecting books. The court would probably grant such an order if convinced that inspection of the book(s) would obstruct or endanger the effective conduct of the liquidation.
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