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Role of the liquidator - Coggle Diagram
Role of the liquidator
IA1986 states that the functions of the liquidator are to secure that the assets of the company are got unrealised and distributed to the company's creditors and if there is a surplus to the persons entitled to it
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In some cases, the official receiver or liquidator will be under a duty to investigate and report on certain matters
Where a company enters insolvent liqudiation or administration, the liquidator or administrator must send a report to the Secretary of State that describes any conduct of a director occurring in the previous 3 years that may assist the Secretary of State in deciding whether to seek a disqualification order
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Distribution of assets
Once the liquidator has got in and realised the company's assets, their job is to apply those assets in satisfaction of the company's liabilities pari passu
The pari passu principle states that the liquidator will distribute the assets to the creditors in proportion to the size of their claim against the company (each creditor will receive an equal proportion of the debt owed to it)
In practice, it may not be the case that every creditor will be paid pari passu as certain types of debt are prioritised or subordinated to other types of debt
Statutre provides that certain types of debt must be paid ahead of, or rank behind, other types of debt
A creditor can prioritise their claim over certain other claims by taking security over the company's assets
Order of distribution
As the liquidator pays each debt in turn, higher ranking debts have a a better chance of being paid than lower ranking debts
If there are not enough assets to pay off a class of creditor in full, they are generally paid pari passu and creditors who rank below that class will not receive anything
Property or assets that are subject to a fixed charge do not fall within the order of distribution, the fixed shareholder can simply take possession of the charged property, sell it and use the proceeds to satisfy his debt. If the proceeds exceed the debt owed, the shareholder must return the excess to the liquidator. If the proceeds do not satin the shareholders debt, the outstanding debt will rank as unsecured
Order
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All fees, costs, charges and other expenses incurred in the course of the winding up are to be treated as expenses of the winding up
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Once the liquidation expenses have been paid and if any funds remain, the lqiudaitor will pay off the company's preferential debts
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- Debts secured by floating charge
Once the preferential debts have been paid, the liquidator will pa off those creditors whose debts have been secured by a floating charge
As floating charges are often taken over all the business and assets of the company, they often consume all the remaining assets, leaving lower ranking creditors with nothing.
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The sum that is set aside is known as the prescribed part and cannot exceed £600,000, the prescribed part is set aside to be used to satisfy the claims of the unsecured creditors
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There may not be enough left to pay off all the unsecured creditors, if so, the remaining funds will be distributed pari passu
Statute provides that certain deferred debts (eg sums due to a member by way of dividend) rank below the claims of unsecured creditros
The deferred creditors will receive less than their due if insufficient assets remain after the payment of other creditors
If the company was solvent when it entered into winding up then sums may remain once all the creditors have been paid
If so, any remaining sums will be distributed to members