Sources: https://www.investopedia.com/terms/l/liquidator.

asp#:~:text=A%20liquidator
%20has%20the%20legal,bring%20on%20and%20defend%20lawsuits .

Liquidator: Examples, Powers and Duties

By 
ADAM HAYES
Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street
experience as a derivatives trader. Besides his extensive derivative trading
expertise, Adam is an expert in economics and behavioral finance. Adam
received his master's in economics from The New School for Social Research
and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a
CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He
currently researches and teaches economic sociology and the social studies
of finance at the Hebrew University in Jerusalem.

Learn about our editorial policies 

 

Updated December 26, 2022

Reviewed by 
ERIKA RASURE

What Is a Liquidator?
A liquidator is a person or entity that liquidates something—generally assets.
When 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 who is specially appointed to wind up the

affairs of a company when the company is closing—typically when the
company is going bankrupt. Assets of a company are sold by the liquidator
and the resulting funds are used to pay off the company's debts.

In some jurisdictions, a liquidator may also be named as a trustee, as in a

bankruptcy trustee.
KEY TAKEAWAYS
  A liquidator is a person or entity that liquidates something—generally
assets, which are sold on the open market for cash or other equivalents.
 The liquidator is given legal authority to act on behalf of a company in
various capacities by courts, shareholders, or unsecured creditors.
 Liquidators are generally assigned to wind up the affairs of a company
when it is going bankrupt.
 Liquidators are the first to be paid in the hierarchy of claims during a
liquidation.
 Smaller or voluntary liquidations like inventory sales often do not require
the services of a liquidator.

Understanding Liquidators
A liquidator is a person with the legal authority to act on behalf of a company
to sell the company's assets before the company closes in order to generate
cash for a variety of reasons including debt repayment.

Liquidators are generally assigned by the court, by unsecured creditors, or by

the company's shareholders. They are often employed when a company goes
bankrupt. Once the liquidator is assigned, they will then take over control of
the person or organization's assets. These are then pooled together and sold
off one by one. Cash received from the proceeds of the sale is then used to
pay off the outstanding debt held by unsecured creditors.

One of the chief functions of many liquidators is to bring and defend lawsuits.
Other actions include collecting outstanding receivables, paying off bills and
debts, and finishing other corporate termination procedures.

 
A liquidator has the legal authority to act on behalf of a company to sell its
assets or to bring on and defend lawsuits.

Powers and Duties of the Liquidator

A liquidator's authority or power is defined by the laws where the role is
assigned. The liquidator may be granted complete authority over all matters of
the business until the assets are sold and the debts are all paid off. Some
others are granted liberties, while still under the supervision of the court.

The liquidator has a fiduciary and legal responsibility to all parties involved—
the company, court, and the creditors involved. Generally considered to be
the go-to person when it comes to making any decisions about the company
and its assets, the liquidator must keep them under their own control to
ensure they are properly valued and dispersed after they are sold. This
person issues any correspondence and holds meetings with creditors and the
company in question to ensure the liquidation process goes through smoothly.

 
Chapter 7 of the U.S. Bankruptcy Code governs liquidation proceedings.
Solvent companies may also file for Chapter 7, but this is uncommon.

How Is a Liquidator Paid?

Liquidators charge fees for their services, This cost will vary depending on the
size of the business, the complexity of the case, and the time needed to
complete the job. The Insolvency Act 1986 specifies the absolute priority (also
known as the liquidity preference) with which stakeholders are repaid in the
event of a bankruptcy or liquidation.

Per the law, liquidators' fees and expenses are always first to be paid.
Payments are then made to senior secured creditors, unsecured and
subordinated creditors, preferred shareholders, and lastly common
shareholders.

Liquidators aren't always part of the liquidation process. A voluntary

liquidation is a self-imposed wind-up and dissolution of a company that has
been approved by its shareholders. Such a decision will happen once a
company's leadership decides that the company has no reason to continue
operating. In some cases, the company may decide to undertake the process
on its own.

Liquidation Sales
Companies may also engage in liquidation sales to reduce costly inventory at
rock-bottom prices. It isn't uncommon to see a retailer advertising a liquidation
sale, selling off as much of, if not all, of their stock—often at a deep discount
to consumers. In some cases, this may be due to insolvency, but don't always
do this because they're closing down. In fact, some stores do this to get rid of
and replace the older stock with new inventory.

Examples of Liquidators
Many retailers undergo liquidation under a liquidator in order to dispose of
their assets because of a looming bankruptcy. The liquidator assesses the
business and its assets and may make decisions on when and how to sell
them. New inventory shipments will be stopped and the liquidator may plan for
sales of the current stock. Everything under the retailer's banner including
fixtures, real estate, and other assets will be sold. The liquidator will then
organize the proceeds and pay off the creditors.

One example is the shoe retailer Payless. Saddled with debt, retailer Payless
filed for Chapter 11 in 2017 with plans to liquidate almost every store it owned
in the United States and Canada. Although it managed to restructure and
survive that period, it wasn't fully out of the lurch. The company filed for
bankruptcy again in February 2019, saying it would close all of its retail
locations across North America—about 2,100 stores—selling its merchandise
at a discount to consumers.

But liquidators are not only assigned to retailers. Other businesses that face
trouble may require a liquidator. They may be required to deal with issues
after a merger takes place when one company buys out another. For
instance, when a merger takes place, one company's information technology
(IT) department may become redundant. The liquidator may be assigned to
sell off or divide the assets of one.