"Willingness to change is a strength, even if it means plunging part of the company into total confusion for a while." - Jack Welch

Last week, particularly in light of the recent developments related to the appointment of joint provisional liquidators in connection with the Baha Mar Resort on Cable Beach, we began a series of articles on liquidations and liquidators.

In part 1 of this series, we addressed why companies go into liquidation. Of particular note was the principle of a "going concern" - the concept that business enterprises are expected to continue as ongoing entities with an indefinite life unless or until circumstances develop to alter their normal life as a business enterprise.

We also observed that liquidations normally arise if a company is insolvent: if it is unable to pay its debts as they fall due, or if the value of the company's liabilities exceeds its assets. In either case, the company is no longer considered a going concern, and liquidation normally signals the beginning of the company's demise.

Finally, we reviewed some of the salient features of the legislation regarding liquidations in The Bahamas and the differing roles of the single or joint provisional and official liquidators as well as the rights of secured creditors.

This week, we would like to Consider this... what are the duties, powers, and responsibilities of the liquidator?

The liquidator's duties, powers and responsibilities
The most important duty of the provisional or official liquidator is to prevent the dissipation or misuse of the company's assets and the mismanagement or misconduct on the part of the company's shareholders, officers, directors and management. He must conduct the affairs of the company that has been placed in liquidation in the interests of all the related stakeholders.

To this end, one of the liquidator's first acts is to seize control of the company's assets. This is achieved and sanctioned by the powers that are vested in him by the court; hence the liquidator legitimately stands in the place of the company's shareholders, officers, directors and management.

Upon being appointed by the court, the liquidator quickly assesses the important matters affecting the company and, following such assessment, almost immediately ceases the operation of the business, except for the benefit of the winding up. This normally results in the often painful, but obligatory, termination of all employment contracts, as was done in the case of the 2,000 employees who were terminated by the Baha Mar joint provisional liquidators.

Although the liquidator will terminate most employees, he can determine which employees he will retain as his agents, by contract, in order to create a smooth liquidation process. For example, he might consider it prudent to continue to contract key personnel who possess vital knowledge and information about the company in order to assist him in achieving his primary objective of protecting the company's assets.

One of the duties of the liquidator is to ensure that the company's assets are transferred to his control. Of course, this is done under court supervision. The liquidator must also ensure that the ownership of the company's shares are not transferred, nor are the shareholders allowed to exercise any powers that have been granted to them under the company's memorandum and articles of association.

In essence, all of the company's normal activities and operations cease because the company under liquidation is no longer a going concern. Once the company is placed in liquidation, the liquidator represents the mind, management and authority of the company.

The liquidator must file the winding up order with the registrar and publish the notice of the liquidation in the gazette (newspaper). Other duties and powers of the liquidator include defending any action in the name of or on behalf of the company, entering into agreements with creditors or anyone who might have a claim against the company, and paying any class of creditor. This is normally done after the liquidator has convened meetings of the creditors and contributories (shareholders) to insure that a comprehensive list has been prepared.

The liquidator can also borrow money or grant security over the property of the company as well as sell the company's property at a public auction or by private contract. The liquidator will often investigate fraudulent activity that might have occurred prior to his appointment and can contract the services of accountants, lawyers, appraisers, forensic auditors or such other persons that he deems necessary to achieve his mandate. He can also require the directors, officers and employees to prepare a statement of affairs relative to the company in order to determine the true state of affairs of the company prior to his appointment.

During the course of the liquidation, the liquidator has a duty to report his activities, findings, decisions and recommendations to the court. At relevant times during the liquidation, the liquidator can make distributions to contributories and creditors out of any surplus assets of the company. In addition, the liquidator should communicate with the public in order to provide an accurate and timely accounting of the status of the liquidation.

In short, the liquidator has enormous powers, duties and responsibilities, always under the supervision of the court, and can do whatever is necessary, in the name of the company, to accomplish his court-directed mandate.

Practical steps taken by the liquidator
As soon as practicable after his appointment, the liquidator should ensure that he has secured financial statements that reflect the financial position of the company at the commencement of the liquidation.  He must also gain control of the company's corporate records, including its corporate seal.

This is normally accomplished by meeting with the company's internal and external auditors to obtain the latest audited or reviewed financial statements and other communications with the auditors in order to ascertain the issues that were brought to the attention of the company's management prior to liquidation.

In securing the company's assets, he must secure all bank accounts and other assets including real estate and pertinent information technology systems, including relevant software and other vendor records. The same is required of the company's debtors in order to determine the amounts and terms of any company debts. He should also liaise with the company's attorneys in order to ascertain if there are any outstanding lawsuits and the status of such lawsuits with a view to determining how to proceed with such matters.

In the final analysis, the liquidator has a solemn duty and responsibility to ensure that the stakeholders in a liquidation receive the best possible distribution of the liquidated company's assets. We often hear that the stakeholders will receive pennies on the dollar either owed to creditors or invested by the company's shareholders.

Conclusion
Next week, we will examine the impact that liquidations have on the economy and also address the differences between liquidations and receiverships.

As we observed in part 1 of this series, the future well-being of thousands of Bahamian families often rests in the hands of the provisional and official liquidators. Therefore, it is vitally important to fully understand their duties, powers, and responsibilities so that we will be better able to hold them accountable for their judgements, decisions and evaluations in the execution of their duties, powers and responsibilities.

o Philip C. Galanis is the managing partner of HLB Galanis and Co., Chartered Accountants, Forensic & Litigation Support Services. He served 15 years in parliament. Please send your comments to pgalanis@gmail.com.

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