# Understanding Liquidators: Roles, Responsibilities, and Real-World Examples

![Liquidator: A person or entity assigned to sell a company's assets to pay off its debts and wind up its affairs before it closes. ](https://www.investopedia.com/thmb/7Z25qeJToiTZ6YBjKoVGn823ero=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/liquidator.asp-final-2c5b6a4a2a6440ff944e0894e351cee8.png)

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## What Is a Liquidator?

A liquidator is an individual or entity appointed to wind up a company's affairs—typically during bankruptcy—by managing its assets and liabilities. They step in when a company is closing, representing it in lawsuits, selling off assets, and paying off creditors. Liquidators may be appointed by a court, creditors, or shareholders and are essential in ensuring a smooth liquidation process by overseeing assets and addressing claims or lawsuits.  

### Key Takeaways

*   A liquidator is an individual or entity appointed to wind up a company's affairs, usually when the company is bankrupt.
*   Liquidators are responsible for selling a company's assets and using the proceeds to pay off debts.
*   The legal responsibilities of a liquidator include representing the company in court and managing legal claims.
*   Liquidators must act ethically and have fiduciary duties to the company, court, and creditors involved.
*   Liquidator fees are usually paid first from the company's assets before settling with other creditors.

## Liquidators: Roles and Responsibilities 

A liquidator is legally authorized to act for a company before it closes, often appointed by the court, creditors, or [shareholders](https://www.investopedia.com/terms/s/shareholder.asp). They often step in when a company declares bankruptcy. Their main job is to generate cash, primarily to pay off debts. 

A liquidator has several key responsibilities. The first is to take control of the organization's assets, which are pooled together and sold off individually. The money from these sales is used to pay the outstanding debts of unsecured creditors. Another key function of liquidators is to bring and defend lawsuits. They also collect outstanding bills, settle debts, and complete other termination procedures.   

A liquidator's authority or power is defined by the laws where the role is assigned. They may be granted complete authority over all business matters until the assets are sold and the [debts](https://www.investopedia.com/terms/d/debt.asp) are all paid off while others are granted liberties while under the court's supervision.

The liquidator has a legal and [fiduciary](https://www.investopedia.com/terms/f/fiduciary.asp) duty to the company, court, and creditors.   
  
Considered the go-to person when it comes to making any decisions about the company and its assets, the liquidator must keep them under their control to ensure they are properly valued and dispersed after being sold. The liquidator issues any correspondence and holds meetings with the company and its creditors to ensure the [liquidation](https://www.investopedia.com/terms/l/liquidation.asp) process goes through smoothly.  

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

## How Liquidators Manage the Liquidation Process

Many retailers use a liquidator to sell their assets when facing bankruptcy. The liquidator assesses the business and its assets and may decide when and how to sell them. New [inventory](https://www.investopedia.com/terms/i/inventory.asp) shipments are stopped and the liquidator may plan for sales of the current stock. Everything owned by the retailer, like fixtures and [real estate](https://www.investopedia.com/terms/r/realestate.asp), is sold. The liquidator organizes the proceeds and pays off the creditors.

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](https://www.investopedia.com/terms/m/merger.asp) takes place when one company buys out another. For instance, when a merger takes place, one company's information technology department may become redundant. The liquidator may be assigned to sell off or divide the assets of one.  

## How to Become a Liquidator: Skills and Qualifications

Liquidators usually have a finance or accounting background. This helps them review and file important financial documents, like tax returns. Their academic and professional experience helps them in valuing assets.  These professionals must also possess the following skills:

*   Negotiation
*   Dealing with difficult situations  
    
*   Analytical skills
*   [Fraud](https://www.investopedia.com/terms/f/fraud.asp) detection
*   Problem-solving
*   Organizational skills
*   [Risk management](https://www.investopedia.com/terms/r/riskmanagement.asp)  
    

Since they have a fiduciary responsibility, liquidators must also act ethically and responsibly to ensure they follow regulations and meet the needs of the company.

## Understanding Liquidator Compensation

Liquidators charge fees for their services, This cost varies 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](https://www.investopedia.com/terms/a/absolutepriority.asp) (also known as the [liquidation preference](https://www.investopedia.com/terms/l/liquidation-preference.asp)) with which stakeholders are repaid in the event of a bankruptcy or liquidation.

According to the law, liquidators are always paid first. Payments are then made to senior secured creditors, unsecured and subordinated creditors, and [preferred shareholders](https://www.investopedia.com/terms/p/preferredstock.asp). Common shareholders are generally the last creditors who are paid during the liquidation process.  

> **Fast Fact**
>
> In some jurisdictions, a liquidator may also be named as a trustee, as in a bankruptcy trustee.

## A Real-World Look at Liquidators in Action

There are many examples of liquidators taking charge of company affairs. This occurred with shoe retailer Payless. Saddled with debt, the company filed for [Chapter 11](https://www.investopedia.com/terms/c/chapter11.asp) in 2017 with plans to liquidate almost every store it owned in the United States and Canada.

Although Payless managed to restructure and survive that period, it wasn't fully out of the lurch. It filed for bankruptcy again in February 2019, saying it would close all of its retail locations across North America, which amounted to about 2,100 stores. The company ended up selling its merchandise at a discount to consumers.  

## Are Liquidators Always Part of the Liquidation Process?

No, liquidators aren't always part of the liquidation process. A [voluntary liquidation](https://www.investopedia.com/terms/v/voluntary-liquidation.asp) is a self-imposed [wind-up](https://www.investopedia.com/terms/w/windingup.asp) 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.

## What Is a Liquidation Sale?

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, if not all, of their stock—often at a deep discount to consumers. In some cases, this may be due to [insolvency](https://www.investopedia.com/terms/i/insolvency.asp), but don't always do this because they're closing down. Some stores do this to get rid of and replace the older stock with new inventory.

## Who Pays for a Liquidator?

The liquidator's fees and expenses are covered by the company's assets after they have been sold off. In the absence of cash or an asset sale, the liquidator is paid using money from shareholders or the company's directors.

## The Bottom Line

Liquidators play a critical role during a company's financial distress, particularly in bankruptcy scenarios. Appointed by the court, creditors, or shareholders, they manage the company’s assets, converting them into cash to pay debts. They may also engage in or defend against legal proceedings on behalf of the company. With fiduciary duties to all parties involved, including the court and creditors, liquidators must ensure transparency and act ethically to oversee a smooth liquidation process.

> **Article Sources**
>
> 1.  CBS News. "[Payless ShoeSource emerges from Chapter 11 bankruptcy](https://www.cbsnews.com/news/payless-shoesource-emerges-from-chapter-11-bankruptcy/)."
>     
> 2.  USA Today. "[Payless ShoeSource closing all 2,100 U.S. stores, starting liquidation sales Sunday](https://www.usatoday.com/story/money/2019/02/15/payless-shoesource-all-u-s-stores-liquidating-and-closing/2885949002/)."
>     
> 3.  McDonald Vague. "[WHO PAYS THE LIQUIDATOR?](https://www.mvp.co.nz/articles/liquidation/who-pays-the-liquidator)"
>     
> 4.  CompanyDebt. "[How Much Does it Cost to Liquidate a Limited Company?](https://www.companydebt.com/liquidation/how-much-does-liquidation-cost/)"