What happens during a liquidation?
A liquidator must give regular reports throughout the liquidation. These reports are sent to every known creditor and shareholder as well as to the Registrar of Companies.
The liquidator must prepare a first report and include:
- Statement of company’s affairs
- Proposals for conducting the liquidation
- Estimated completion date
- Alert investors to their statutory right to call for a meeting of creditors or shareholders
- A list of every known creditor of the company with each creditor's address (if known).
Time limits for delivery of the report differ depending on the method of appointment:
- For court ordered liquidations, 25 working days after the liquidator’s appointment, and
- For all other liquidations, five working days after appointment.
The liquidator must prepare and file six-monthly reports on:
- The conduct of the liquidation during the preceding six months and
- Any further proposals for completing the liquidation.
Time limits for delivery of these reports are the same for all liquidations that is, within 20 working days of each six-months following the commencement of the liquidation.
Note | For liquidations commenced prior to 1 November 2007
If the dividend is not likely to exceed 20 cents in every dollar owed to unsecured creditors, the liquidator is not obliged to file the initial or six-monthly reports. In this case, the liquidator must give notice to the Registrar that he or she does not intend to comply with those provisions.
Creditors’ meetings can be a useful tool to more fully investigate a company’s affairs including the causes of insolvency. Such meetings may also lead to the identification of previously undiscovered assets. It's a forum for raising and discussing matters relevant to the administration of the liquidation.
- A creditors’ meeting is not called for every liquidation.
- Generally creditors’ meetings will only be held where they are likely to be of benefit to the administration.
- They may also be held in particularly large liquidations involving complex issues where the liquidator considers that it would be appropriate for creditors to assist in making decisions.
- Creditors’ meetings are not an opportunity for creditors to badger the company director or to attempt to extract some retribution for financial losses suffered.
- Where a liquidator decides not to call a creditors' meeting, the liquidator must give notice of that decision (in writing to the creditors and by placing a public notice)
- If a creditor would like a meeting to be held, they can make a request in writing to the liquidator setting out why they consider that holding a creditors’ meeting would benefit the administration of the liquidation.
- Public notices of meetings must be arranged by the liquidator.
Why hold a creditors’ meeting?
A creditor’s meeting may be held for the following purposes:
- To allow creditors to decide whether a new liquidator should be appointed
- To pass a resolution setting out the views of creditors for the purposes of Section 258
- To allow creditors to decide whether to appoint a liquidation committee
- To enable the liquidator to inform creditors or shareholders of the progress in the liquidation or
- To provide the opportunity for the liquidator to investigate or obtain information that will materially benefit creditors or the liquidator.
Where a meeting has been called (or the liquidator has received a notice requiring the meeting to be called, or the liquidator decides to hold a meeting) the liquidator must give notice of the meeting at least five working days before the date of the meeting by:
- Sending written notice to creditors (together with the liquidator’s report to creditors).
- Placing a public notice.
The meeting must be held within 15 working days after the liquidator receives the notice.
How soon should a creditors meeting be held?
The time limits for calling the first meeting of creditors vary depending on the method of appointment. A first meeting must be called within:
- 30 working days after the liquidator's appointment for court ordered liquidations, and
- 10 working days of the liquidator’s appointment for all other liquidations.
In either case, the Court may extend the timeframe for holding the first creditors' meeting.
Every meeting of creditors must be held in accordance with Schedule 5 of the Companies Act 1993.
When is a liquidator NOT required to hold a creditors meeting?
A liquidator may dispense with holding a creditors meeting under certain circumstances and must advise creditors by giving written notice. If, after receiving such a notice from the liquidator, creditors believe a meeting should be held they have the right to call that meeting. In this situation a creditor must provide their written request to the liquidator within ten working days of receipt of the notice from the liquidator.
Other situations where no creditors’ meeting is required following liquidation include where:
- When a liquidator is appointed following a watershed meeting in a voluntary administration, or
- No less than 20 working days prior to the commencement of the liquidation the board resolves that the company would, on the appointment of a liquidator, be able to pay its debts and a copy of the resolution is delivered to the Registrar for registration.
(Reference - Section 243(8) Companies Act 1993)