This article is written by Mark Davidson, Manager of our Gold Coast office.
Why would you want to replace the liquidator of a company?
Liquidators are obligated to act independently and in the best interest of creditors. However, there can be times, when there is a perceived conflict, dispute or disagreement with creditors. This can result in creditors looking to appoint another Liquidator.
The advantages and disadvantages of replacing a liquidator
The major benefits in changing a liquidator can be:
- Assisting to resolve the issue of conflict; or
- A new liquidator may communicate more effectively on complex matters;
- A new liquidator may be more inclined to investigate and/or pursue legal claims; or
- A new liquidator may be a local liquidator which can provide some reduce costs.
The most significant disadvantage to creditors of changing a liquidator is that it can result in increased costs. This can be as a result of the process to change the liquidator or due to the new liquidator spending time to get up to speed on various issues. It may also be the case that a new liquidator might see a particular matter which was subject to disagreement with creditors the same way as the outgoing liquidator.
How do you replace a liquidator?
Prior to the changes in 2017 the only cost-effective way to appoint a new liquidator was at the first meeting of a company’s creditors. Failing that, a creditor would have to apply to court in order to obtain a change.
However, amendments to the Corporation Act 2001 which came into effect in 2017 allow creditors to replace a liquidator as follows:
- A creditor, or creditors, who are owed more than 25% of the total debt of a company in liquidation, can direct the Liquidator to hold a meeting at which a resolution could be passed to replace the liquidator.
- If creditors hold less than 25% but greater than 10% of the total debt of a company in liquidation, then they can still direct the liquidator to hold the meeting but will need to pay the costs of holding the meeting.
- If a creditor or creditors hold less than 10% of the total debt of a company in liquidation, they will not be able to direct the liquidator to hold the meeting. They could still apply to court to change the liquidator, but this process would be costly and may not be successful.
At the meeting, creditors would need to pass a resolution that a new liquidator be appointed. This resolution would initially be voted on by a ‘show of hands’ and will be passed if more than 50% in number of the creditors voting for the resolution vote for it. However, a ‘Poll’ could also be called for to determine voting. A ‘Poll’ can be called for by the chairperson of the meeting (usually the current liquidator), two or more creditors or a creditor owed 10% of the debt which is being voted for at the meeting. If a ‘Poll’ is called for, then for the resolution to be passed it must be passed by both a majority in number and value of creditors voting at the meeting. If there is a deadlock, the chairperson of the meeting gets a casting vote.
Seeking advice or assistance
If you are unhappy with the current liquidator you are dealing with and would like to know options, then please don’t hesitate to get in touch with us for a free initial consultation.