Sections 303 to 310 of the Companies Act 1997 define the office of liquidator: one central duty, a long list of reporting obligations, and a schedule of powers.
Section 303 — the principal duty
(a) to take possession of, protect, realise, and distribute the assets, or the proceeds of their realisation, to the company’s creditors in accordance with this Act; and
(b) where there are surplus assets remaining, to distribute them in accordance with section 361(4),
in a reasonable and efficient manner.
The duty is owed to the creditors as a body, and then to the shareholders. A receiver, by contrast, must act in the best interests of the person who appointed them, with only reasonable regard for anyone else.
“In a reasonable and efficient manner” is a real constraint. A liquidator who spends the estate on investigation that cannot produce a recovery is not conducting the liquidation efficiently, and the remuneration is reviewable under section 324.
(a) Except where the charge is surrendered, taken to be surrendered, or redeemed under section 353, a liquidator may, but is not required to, carry out any duty or exercise any power in relation to property subject to a charge.
(b) Where a company is put into liquidation by the Court and has no assets available for distribution, the liquidator shall not be required, without the consent of the Registrar, to carry out any duty or exercise any power where doing so would or would be likely to involve incurring any expense.
Paragraph (a) keeps the liquidator out of the secured creditor’s asset unless the security is given up. Paragraph (b) protects a liquidator appointed to an empty shell — often on the Registrar’s own application — from having to fund the work personally.
Section 305 — the reporting obligations
(a) within seven days of being appointed or notified of the appointment, give public notice of (i) the appointment, (ii) the date of commencement of the liquidation, and (iii) an address and telephone number for inquiries by a creditor or shareholder during normal business hours;
(b) within seven days, submit to the Registrar a notice of appointment in the prescribed form;
(c) within the applicable period — (i) prepare a list of every known creditor with addresses; (ii) prepare and submit to the Registrar, every known creditor and every shareholder a report containing the prescribed details, including a statement of the company’s affairs, proposals for conducting the liquidation, and where practicable the estimated date of completion; and (iii) send with it a notice explaining the right to require a meeting of creditors under section 362;
(d) within one month of the end of each six-month period, prepare and send to every known creditor and shareholder, and submit to the Registrar, a report on the conduct of the liquidation during the preceding six months, the prescribed details, and any further proposals for completing it.
14 days where the liquidator was appointed by shareholders or the board; one month where appointed by the Court; or such longer period as the Court may allow.
A liquidator is not required to comply with subsection (2)(c) or (d) where satisfied that the value of assets available for distribution to unsecured creditors other than Schedule 9 preferential creditors is not likely to exceed 20 toea in every kina owed — or such other sum as may be prescribed.
In other words, where the expected dividend to ordinary unsecured creditors is under 20%, the detailed reporting can be dispensed with. Under section 305(4) the Court may also exempt a liquidator from those paragraphs or modify their application on such terms as it thinks fit.
Sections 305(6) and 308A — reporting offences
Section 305(6) — a liquidator who considers that the company or any person has (a) committed an offence in relation to the company, or (b) been guilty of any negligence, default, breach of duty or trust in relation to the company, shall as soon as practicable submit a written report to the Registrar, and give such information, documents, assistance, further reports and access as the Registrar requires. Failure is an offence under subsection (7).
Section 308A — a liquidator who considers that an offence material to the liquidation has been committed by the company or any director against this Act or any other Act or law of Papua New Guinea must report that fact to the Registrar. Failure is an offence.
A report under section 308A, and any communications between the liquidator and the Registrar relating to it, are protected by absolute privilege. A liquidator who reports a director in good faith cannot be sued in defamation for it, and neither can the exchange that follows.
The equivalent duty for a receiver is in section 277.
Sections 306, 307 and 309 — accounts, the final report, and documents
The liquidator shall keep accounts and records of the liquidation, and permit them — and the company’s own accounts and records — to be inspected by (i) any liquidation committee, unless the liquidator believes on reasonable grounds that inspection would be prejudicial to the liquidation, and (ii) where the Court so orders, a creditor or shareholder; and shall retain them for not less than seven years after completion.
Under section 306(2) the Registrar may authorise earlier disposal, or require longer retention, before or after completion.
As soon as practicable after completing the duties, the liquidator shall send to every creditor whose claim has been admitted and every shareholder —
(i) the final report and statement of realisation and distribution;
(ii) a statement that (A) all known assets have been disclaimed, realised, or distributed without realisation; (B) all proceeds have been distributed; and (C) the company is ready to be removed from the register;
(iii) a statement that a person may apply to the Registrar or the Court objecting to removal under section 370 or 371;
and shall submit copies to the Registrar for registration. Doing so completes the liquidation under section 299(a).
Section 309 adds a continuing requirement: every document entered into, made, or issued by a liquidator on behalf of the company shall state in a prominent position that the company is in liquidation — the counterpart of section 260 in a receivership.
Section 310 and Schedule 8 — the powers
(a) commence, continue, discontinue, and defend legal proceedings; (b) carry on the business of the company, to the extent necessary for the liquidation; (c) appoint a lawyer; (d) pay any class of creditors in full; (e) make a compromise or arrangement with creditors, present or future, actual or contingent, ascertained or not; (f) compromise calls, debts, liabilities and claims, take security, and give a complete discharge; (g) sell or otherwise dispose of the property; (h) act in the name and on behalf of the company and enter into deeds and contracts; (i) prove, rank and claim in the bankruptcy or insolvency of a shareholder; (j) draw, accept, make and endorse bills and notes in the company’s name; (k) borrow money on the security of the company’s assets; (l) take out letters of administration to a deceased shareholder; (m) call meetings of creditors or shareholders; (n) appoint an agent to do anything the liquidator cannot.
A liquidator may, if the Court has first approved it, assign any right to sue that is conferred on the liquidator by this Act. The application may be made by the liquidator or by the proposed assignee, and may be opposed by a defendant or proposed defendant.
This matters where the estate has no money to fund litigation. Claims for voidable transactions or insolvent trading can be sold to a creditor or a funder, converting an unfundable claim into a realisation. Court approval is a precondition, and the intended defendant is entitled to be heard.
Section 308 requires the liquidator to have regard to the views of shareholders and creditors expressed in resolutions and of any liquidation committee in writing — and to summon meetings when required by shareholders holding 10% of paid-up capital or creditors owed 10% of the total. But section 308(4) preserves the liquidator’s discretion: having regard to views is not being bound by them.
Sources
- Companies Act 1997 — ss 260, 277, 299, 303–310A, 324, 353, 361, 362, 370, 371, 413; Schedules 2, 7, 8 and 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.