Are liquidation committees necessary?

Liquidation committees help to safeguard creditors’ interests…

Sometimes when a company is wound up via compulsory liquidation or creditors’ voluntary liquidation (CVL) a liquidation committee is formed to monitor the liquidator’s activities and look after creditors’ interests.

Without liquidation committees, liquidators could do as they please and put their own interests over those of creditors. The establishment of a committee gives creditors a voice during the liquidation process where they can often feel powerless.

A liquidation committee offers transparency and ensures that creditors remain well-informed and their interests protected. A committee may comprise three to five members.

Valuable insight

Members can actually provide valuable insight to the liquidators in terms of decision-making. Creditors who wish to be a member of the liquidation committee must be willing to fulfil the duties and have:

  1. An unsecured debt
  2. Officially lodged a proof of debt

Additionally, members must also NOT be an undischarged bankrupt (not subject to bankruptcy restrictions) or a:

  • Body corporate
  • Disqualified director

Previously, one of our clients was owed money by a company that entered administration. The administrator / IP charged over £200,000 for the first two months’ work before suggesting they would:

  • Place the company into liquidation after 10 months of administration
  • Charge another £200,000 in administration fees
  • Charge £200,000 in liquidation fees

Liquidation committee

In response, Insolvency & Law utilised the power of the creditors’ committee by requesting the IP:

  • Slash their initial £200,000 charge to £120,000 (saving 40%)
  • Reduce their £200,000 liquidation fee to £100,000 (saving 50%)
  • End the administration immediately and place the company into a CVL

This strategy increased the amount creditors received by £380,000. Furthermore, the time it took for the client to receive their payment reduced. In short, liquidation committees are most definitely necessary for creditors who want to:

  1. Have a say in the liquidation process
  2. Maximise their prospects for a return
  3. Gain some control over the liquidation process
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