What is a liquidator?
A liquidator is a person or entity who liquidates something – usually assets. When the assets are liquidated, they are sold on the open market for cash or other equivalents. The liquidator is legally empowered to act on behalf of the company in various capacities.
A liquidator refers to an officer specially appointed to liquidate the affairs of a business when the business closes, usually when the business goes bankrupt. The assets of a business are sold by the liquidator and the resulting funds are used to repay the debts of the business.
In some jurisdictions, a liquidator can also be considered a trustee, like a trustee in bankruptcy.
A liquidator has the legal power to act on behalf of a business to sell its assets or to initiate and defend lawsuits.
Understanding the liquidators
A liquidator is a person legally authorized to act on behalf of a business to sell the business assets before the business closes in order to generate cash for a variety of reasons, including debt repayment.
The liquidators are generally appointed by the court, by unsecured creditors or by the shareholders of the company. They are often employed when a business goes bankrupt. Once the liquidator has been appointed, he then takes control of the assets of the person or organization. These are then grouped together and sold one by one. The cash received from the proceeds of the sale is then used to repay the outstanding debt held by unsecured creditors.
One of the main functions of many liquidators is to initiate and defend lawsuits. Other actions include collection of unpaid debts, repayment of debts and completion of other business termination procedures.
Powers and duties of the liquidator
The power of a liquidator is defined by the law to which he is assigned. The liquidator may be granted full powers over all commercial matters until the assets are sold and the debts are all repaid. Some others enjoy freedoms, while remaining under the supervision of the court.
The liquidator has a fiduciary and legal responsibility towards all the parties concerned – the company, the court and the creditors concerned. Generally considered as the reference person when it comes to making decisions concerning the company and its assets, the liquidator must keep them under his control to ensure that they are correctly valued and dispersed after their sale. This person issues all correspondence and holds meetings with the creditors and the company in question to ensure the smooth running of the liquidation process.
Key points to remember
- A liquidator is a person or entity who liquidates something, usually assets, which are sold on the open market for cash or other equivalents.
- The liquidator is legally authorized to act on behalf of a company in various capacities by the courts, shareholders or unsecured creditors.
- Liquidators are generally responsible for liquidating the affairs of a business when it goes bankrupt.
Examples of liquidators
Many retailers are liquidated by a liquidator to dispose of their assets due to an impending bankruptcy. The liquidator assesses the business and its assets and can decide when and how to sell them. New stock shipments will be stopped and the liquidator can plan sales of the current stock. Everything under the retailer’s banner, including light fixtures, real estate and other assets, will be sold. The liquidator will then organize the product and reimburse the creditors.
One example is the shoe retailer Payless. Struggling with debt, the retailer Payless filed for Chapter 11 in 2020 with the intention of liquidating almost every store it owned in the United States and Canada. Although it managed to restructure and survive this period, it was not completely out of the impasse. The company again filed for bankruptcy in February 2019, saying it would close all of its retail stores in North America – around 2,100 stores – selling its merchandise at reduced prices to consumers.
But the liquidators are not only assigned to retailers. Other companies that are having problems may need a liquidator. He or she may have to deal with problems after a merger when one company buys another. For example, when a merger takes place, a company’s IT department can become redundant. The liquidator may be responsible for selling or dividing the assets of one.
Liquidators are not always part of the liquidation process. It is not uncommon to see a retailer announce a liquidation sale, sell as much, if not all, of its stock, often with a significant discount to consumers. In some cases, this may be due to insolvency, but don’t always do it because they close. In fact, some stores do this to get rid of old inventory and replace it with new inventory.