A liquidator takes custody of everything a company owns and decides what happens to it. Sections 324 to 331 of the Companies Act 1997 control who may hold the office and what they may charge for it.
Sections 329 and 330 — consent and validity
The appointment of a person as liquidator, other than on the order of the Court, is of no effect unless that person has consented in writing to the appointment.
The acts of a person as liquidator are valid even though that person is not qualified to act as a liquidator.
Section 330 is why a special resolution must name a person who has already agreed. Section 329 protects everyone who deals with the liquidator: a disqualification invalidates the appointment, not the transactions — compare section 266 for receivers, which is drafted more narrowly.
Section 328 — who may not be a liquidator
(a) a person less than 18 years old;
(b) a creditor of the company in liquidation;
(c) a person who has, within the two years immediately preceding the commencement of the liquidation, been a shareholder, director, auditor, or receiver of the company or of a related company;
(ca) a person who has, or whose firm has, within the two years immediately before commencement, provided professional services to the company;
(cb) a person who has, or whose firm has, within the two years immediately before commencement, had a continuing business relationship (other than through the provision of banking or financial services) with the company, its majority shareholder, any of its directors, or any of its secured creditors;
(d) an undischarged bankrupt;
(e) a person of unsound mind or unable to manage his affairs;
(g) a person subject to an order under section 334(5);
(h) a person subject to an order under section 286(6);
(i) a person who would be prohibited under section 142 of the repealed Act, but for its repeal;
(j) a person prohibited under section 425, 426 or 428.
(3) A body corporate shall not be appointed or act as a liquidator. Contravention of subsection (2) or (3) is an offence, penalty under section 413(2).
Both paragraphs contain the same proviso: the disqualification does not apply where, within 20 working days before the appointment, the board resolves that the company will, on the appointment, be able to pay its debts and a copy of the resolution is delivered to the Registrar for registration.
The logic is straightforward. Where the company is solvent and creditors will be paid in full, there is no one to prejudice, and the company’s own accountant may sensibly wind it up. Where it is insolvent, the person who audited it, advised it, or did business with it cannot be the person who investigates it.
The exclusion of banking or financial services from paragraph (cb) is necessary. Almost every insolvency practitioner banks somewhere, and without the carve-out the pool of eligible appointees would collapse.
| Ground | Receiver — s 256 | Liquidator — s 328 |
|---|---|---|
| Under 18 | Yes | Yes |
| A creditor of the company | Only the mortgagee is excluded | Any creditor |
| Recent director | Two years — of the company or the mortgagee | Two years — of the company or a related company |
| Recent shareholder, auditor or receiver | Shareholding only | All three, two years |
| Recent professional adviser or business associate | Not excluded | Excluded — ss 328(2)(ca), (cb) |
| Body corporate | Prohibited | Prohibited |
| Court override | Yes — “unless the Court orders otherwise” | Yes — same words |
Sections 324 to 326 — remuneration
(1) Subject to section 332(1)(e), every liquidator appointed by shareholders or the board is entitled to charge reasonable remuneration for carrying out the duties and exercising the powers of a liquidator.
(2) Unless the Court otherwise orders, every liquidator appointed by the Court shall charge remuneration either (a) of an amount equal to the amount fixed under section 325, or (b) at or in accordance with such rate or rates as may be prescribed under that section.
A fixed amount or a rate or rates — including (a) hourly or other rates, with different rates for different classes of persons doing the work; (b) rates by reference to the net value of the assets realised, together with such other amounts as may be specified; (c) rates for the exercise of a particular function or power; and (d) rates by reference to such other criteria as may be specified.
Under section 326, the expenses and remuneration of the liquidator are payable out of the assets of the company — and under Schedule 9 section 1 they are paid first, ahead of employees and every other claim.
Section 324(1) is expressly subject to section 332(1)(e), under which the Court may review or fix the remuneration of a liquidator at a level which is reasonable in the circumstances — and, where an amount retained is unreasonable, order it refunded. Because the liquidator is paid first out of the estate, this is the principal financial control on the office.
Sections 327 and 331 — leaving office
(1) The office becomes vacant if the liquidator resigns, dies, or becomes disqualified under section 328.
(2) A liquidator other than one appointed by the Court may resign by appointing another such person as successor and submitting notice in the prescribed form to the Registrar.
(3) A Court-appointed liquidator may resign only with the approval of the Court.
(4) The Court may, on the application of the company, a shareholder or other entitled person, or a director or creditor, review the appointment of a successor and appoint any person who could be appointed under section 291(2)(a), (b) or (c).
(5) Where a vacancy occurs otherwise than by resignation, notice in the prescribed form shall be submitted to the Registrar within seven days by the person vacating office or, if unable to act, by their personal representative.
(6) Where no person is acting as liquidator after a vacancy — other than in a Court appointment — the Registrar may appoint a person to act until a successor is appointed.
(7) The Court may appoint a liquidator on the application of the company, a shareholder or other entitled person, a director, a creditor, or the Registrar.
(8) A person vacating office shall, where practicable, provide such information and assistance to the successor as they reasonably require.
A liquidator who resigns under subsection (2) chooses their own successor, without a Court order or a creditors’ vote. Subsection (4) allows anyone with an interest to have that choice reviewed.
It is also the provision borrowed by section 291A(3): a creditor whose Court application was pre-empted by a hurried shareholder appointment may apply under section 331 as if the words “successor to a liquidator” read “liquidator”.
Under section 327, a liquidator ceases to hold office on completion of the liquidation under section 299 — but that does not limit the Court’s continuing powers under sections 332 and 334.
Sources
- Companies Act 1997 — ss 266, 286, 291, 291A, 299, 324–332, 334, 413, 425, 426, 428; Schedule 9
Before relying on anything here, read the current text of the Companies Act 1997 and check for later amendments. If a decision matters to you, get advice — start with the Office of the Public Solicitor, or find a firm in the law firms directory.