We are often asked ‘how do liquidators’ work’ and what are their rights regarding access to company records and information. To clarify we have put together this article.
When a liquidator is appointed over a company, either by the shareholders or by order of the High Court, one of the first steps taken will be to locate and uplift the books and records of the company and to seek information about the business, accounts or affairs of the company to enable a full review to be undertaken.
The purpose of the review is to –
- Establish the financial position of the company at liquidation;
- Ensure that all assets have been properly accounted for;
- Identify any other avenues of recovery for the benefit of the company’s creditors; and
- Examine the actions of the company’s officers to see if they have properly carried out their duties and take the appropriate steps where necessary.
Books & Records
The books and records are generally in the possession or control of the director or are held by the company’s professional advisors, such as accountants and lawyers.
When we are appointed as liquidators, our first approach in relation to obtaining company records, is by way of a letter to the relevant person or entity requesting details of the records held and seeking arrangements to uplift those records.
In most cases that initial letter is sufficient but, on occasion, the request is either ignored or refused.
When the records requested are not provided in a timely manner, the liquidator has powers under section 261 of the Companies Act 1993 (“the Act”) to issue a written notice demanding the records and it is an offence to fail to comply with a notice.
Pursuant to section 263 of the Act, a person is not entitled to claim or enforce a lien, over the books and records of the company, against the liquidator, that arises in relation to a debt for the provision of services to the company prior to the liquidation commencing. However, the debt is a preferential claim in the liquidation to the extent of 10% of the total debt up to a maximum of $2,000.
When it comes to obtaining information about the company’s affairs, again our initial approach is to ask the people concerned to provide it.
But, if that doesn’t happen, section 261 of the Act also gives the liquidator the power to issue a notice in writing to various categories of people who have knowledge of the company’s affairs, to attend on the liquidator in person to provide the information that they have.
The people who can be required to attend are –
- a director or former director of the company; or
- a shareholder of the company; or
- a person who was involved in the promotion or formation of the company; or
- a person who is, or has been, an employee of the company; or
- a receiver, accountant, auditor, bank officer, or other person having knowledge of the affairs of the company; or
- a person who is acting or who has at any time acted as a solicitor for the company.
The person to whom the Notice is issued may be required –
- to attend on the liquidator at such reasonable time or times and at such place as may be specified in the notice:
- to provide the liquidator with such information about the business, accounts, or affairs of the company as the liquidator requests:
- to be examined on oath or affirmation by the liquidator or by a barrister or solicitor acting on behalf of the liquidator on any matter relating to the business, accounts, or affairs of the company:
- to assist in the liquidation to the best of the person’s ability.
A person who fails to comply with a notice given under this section commits an offence and, if convicted, is liable to a fine not exceeding $50,000 or imprisonment for up to 2 years.
When appointed over a company, the liquidator doesn’t know what they don’t know so they have been given statutory powers to uplift company records and to obtain information from those people who do know to ensure that any potential avenue of recovery for creditors is identified.
If you would like to find about more about the different insolvency services available you can read more here. If you would like more information about the powers of the liquidators to obtain information and records or how liquidators work, please contact one of the team at McDonald Vague.