What Is A Liquidation Committee & What Do They Do?

A Liquidation Committee working with an insolvency practitioner

The insolvency process can be complex and will often require the formation of a liquidation committee to assist insolvency practitioners in effectively discharging their duties. Despite their importance, however, most people heading into an insolvency process won’t know what a liquidation committee is nor why are they important. Chances are you’re not too sure either given the fact you’re here reading this article, so we’ll do our best to fill in the blanks.

In this article, we’ll not only be discussing what a liquidation committee is and why they are important but also exploring their role and how they help facilitate the insolvency process.

What Is A Liquidation Committee

First things first, a liquidation committee is a group of individuals who are appointed to oversee the insolvency process. Typically made up of representatives from the company’s various stakeholder groups, the primary responsibility of this group of creditors, shareholders, and employees is to make sure that insolvencies are conducted in a fair, equitable, and impartial manner. Liquidation Committees are more commonly established when it comes to Creditor’s Voluntary Liquidations (CVL) and Compulsory Liquidations, but can be formed during Member’s Voluntary Liquidations (MVL) too.

Not just anyone can join a Liquidation Committee though and the number of committee members must be between 3-5. For creditors to join the committee, they must be able to prove that they are owed money by the insolvent company and that the debt is not fully secured.

What Does A Liquidation Committee Do?

While the oversight and guidance they provide are essential, these are just two of the important responsibilities that liquidation committees have. One of their primary duties is to work with insolvency practitioners to develop a plan for the liquidation of the company’s assets and outline how the assets will be sold. Another key role is to ensure that the company’s assets are sold for the highest possible value, which can involve engaging appraisers and auctioneers to value and sell the company’s assets. Once these steps have been completed, the insolvency practitioner will then seek agreement of the costs of the process from the committee and distribute any surplus funds to creditors in accordance with the Insolvency Rules.

In addition to overseeing the sale of assets, the liquidation committee is also responsible for guiding the insolvency practitioner in respect of their review of the financial affairs and transactions of the company. The insolvency practitioner will regularly update the committee as regards any progress achieved in this regard and, if necessary, seek their vote on pursuing actions further. These responsibilities seek to build trust between the insolvency practitioner and the committee, on behalf of all creditors.

Speaking of building trust, the next point also goes a long way toward promoting confidence between the various stakeholders. You see, a liquidation committee also has the power to approve or reject an insolvency practitioner’s decisions and can veto any proposed plan or action. This input from all relevant stakeholders ensures that the liquidation process is conducted transparently and without prejudice.

In conclusion, a liquidation committee is a crucial part of the insolvency process. It provides oversight and guidance, ensures that the process is conducted in a fair and transparent manner, and communicates with creditors and other stakeholders. If your company is currently undergoing a liquidation process or you’re considering putting your company into one, it is important to understand the role of the liquidation committee and how they can help facilitate the process. For more information, please don’t hesitate to contact us.

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