Liquidations

Questions and Answers

What does “liquidating” a company mean?

In its simplest form, ‘liquidation’ refers to winding up a company by selling off its assets and converting them into cash to pay the company’s secured and unsecured creditors in proportion to the company’s confirmed indebtedness to each creditor.

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Why does a company go into liquidation?

A company may go into liquidation when its liabilities are greater than its assets.

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What is the difference between a secured and an unsecured creditor, and are there any other kinds of creditors?

Secured creditor: Has a registered, secured charge against the assets of the company. Examples are a mortgage or pledge of some kind.

  • Unsecured creditor: Does not have a secured charge.
  • Employees: Are a special class of unsecured creditors. Employees who have made claims for wages, salaries and/or other entitlements, once accepted by the Liquidator, are given priority over the claims of other unsecured creditors.

 The order of priority for payment of dividends is:

  • Rates and taxes
  • Cost and expenses of winding up
  • Preferential debts e.g. wages/salaries, workmen’s compensation/leave entitlement
  • Floating charges e.g. debentures (secured charge)
  • Ordinary unsecured creditors e.g. judgment creditors, general body of creditors
  • Members/shareholders (only when creditors have been paid in full)
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How is a company (financial institution) put into liquidation?

Winding up of a company may be either:

  • By the Company (voluntary)
  • By the Court upon application by:

–        The Creditors (involuntary/compulsory)

–        By an application of the CBTT acting under its powers (involuntary/compulsory)

Where a company has been placed into compulsory liquidation, the Court may either appoint an Official Receiver, or a Liquidator, or both to wind up the company.

 

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Why is DIC the liquidator for Clico Investment Bank Limited (CIB)?

CIB was a member institution of the Deposit Insurance Fund.

Under S44 of CBTT Act the DIC has the power to act as Liquidator for its member institutions.

By an order of the High Court dated October 17, 2011, Clico Investment Bank Limited was ordered to be wound up and DIC was appointed liquidator.

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Who pays the costs of the liquidation?

The costs associated with the liquidation are met from monetizing the company’s assets.

Where the DIC is the court appointed liquidator and the funds of the company are insufficient to meet the costs associated with the liquidation the DIC may revert to the court for guidance and/or release from its obligations especially if the associated costs create an unsupportable burden to the Deposit Insurance Fund.

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Why might payment to creditors take an extended period of time?

The liquidator has to take control and then secure, realize and monetize the assets of a company prior to any distribution. The company’s size, composition, complexity and location of the assets, the length of time it takes to liquidate the assets, quality of records and the number of creditors are just some of the elements which can affect when payment is made.

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How do I prove my legitimacy as a creditor?

All creditors or their agents must complete a Form 55 – Proof of Debts/General Form by which they are required to prove their debt before the liquidator considers their claim.

All claims should be accompanied by a sworn affidavit or signed before a Notary Public (claims outside of Trinidad and Tobago).

The liquidator may accept or reject the debt, in whole or in part, or request further proof of the debt.

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What does the liquidation process involve?

The liquidation process begins with the filing of the winding up petition in Court. When an application is made the Court appoints a liquidator to wind up the company.

Once a company is in liquidation:

  • The powers of the directors cease and the liquidator takes charge of the assets of the company; and
  • No action or proceeding can be continued or commenced against the company without permission of the Court.
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What is the liquidator’s role?

The liquidator has a duty to all creditors, its powers under the Companies Act include but are not limited to:

  • Taking control of and realizing a company’s assets in order to distribute the monetized assets to creditors;
  • Bringing or defending Court proceedings in the name of the company, to recover debts due to or dispute debts alleged to be owed by the company. This includes bringing a legal action with a view to recovery from directors of the company. S376 CA
  • Carrying on the business of the company to the extent that this is necessary for the beneficial winding up of the company.
  • Paying debts and compromising/reaching a settlement on claims and liabilities of the company.
  • Selling any real or personal property of the company.
  • Executing deeds, receipts and other documents in the name of the company.
  • Doing all such other things as may be necessary for winding up the affairs of the company and distributing its assets.

 

In a compulsory winding up, the liquidator’s powers are subject to the control of the Court and any creditor or contributory may apply to the Court with respect to any exercise or proposed exercise of any of those powers.

The liquidator may also apply to the Court for directions on any matter arising under the winding up.

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How can interested parties ensure that the liquidation process is being handled with due diligence?

The liquidator files statements of Affairs annually with the Official Receiver and Statements of Accounts semi-annually with the Registrar of Companies. Much of the information regarding the liquidation process, including costs associated with the liquidation, can be found in the Statement of Accounts and by visiting the DIC website.

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Can the Liquidator communicate directly with the creditors?

The Liquidator may communicate either individually or collectively with creditors.

The Court-appointed liquidator may call a Creditors’ Meeting to ascertain creditors’ opinions on matters relating to the winding up of the company.

High value creditors of the company may be entitled to request the liquidator to convene a Creditors’ Meeting to put forward a proposal(s) for consideration by all creditors.

If voting is required at a Creditors’ Meeting, only those creditors whose Form 55 Proof of Debt Claims have been admitted either wholly or in part by the liquidator, before the date on which the meeting is to be held, will be entitled to vote.

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Do some creditors rank higher than others in terms of voting rights?

All creditors rank equally in terms of voting rights.

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Do some creditors rank higher than others in terms of distribution?

This is the general order of priority for payment of dividends (S435 CA):

  • Rates and taxes
  • Cost and expenses of winding up
  • Preferential debts e.g. wages/salaries, workmen’s compensation/leave entitlement
  • Floating charges e.g. debentures (secured charge)
  • Ordinary unsecured creditors e.g. judgment creditors, general body of creditors
  • Members/shareholders (only when creditors have been paid in full)
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Are payments to creditors made in currency, or are there other forms of payments such as shares or other assets?

Traditionally, distribution is made in cash. For any other form of distribution, the liquidator would solicit the support of the creditors and the sanction of the Court.

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How would payments be made?

The general rules for payment of dividends to creditors are:

  • Only admitted claims can be paid;
  • All assets must have been realised and all enforceable debts and liabilities proven before a dividend payout is made;
  • The liquidator and creditors must clear mutual debts and credits through set-off; (S434 CA imports mandatory set-off rules from S35 Bankruptcy Act Chap 9:07)
  • Sometimes, in a lengthy liquidation, an interim dividend payment (of so many cents on the dollar) can be made;
  • If 100% payout on claims cannot be made, each unsecured creditor would be paid an equal proportion of the amount owed to the creditor (pari passu).
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What is a Notice of Intended Dividend?

This is a formal Notice of the Liquidator’s intention to declare a dividend which is published in the Gazette and newspaper not more than two (2) months before the Liquidator actually declares a dividend.  At the same time, the Liquidator must give notice to the creditors mentioned in the statement of affairs who have not proved their debts.

  • The Notice must contain the latest date by which all creditors mentioned in the statement of affairs must submit/lodge their Form 55 – Proof of Debt in order to be considered for payment of dividend. This date shall not be less than 14 days from the date of the Notice. (Winding Up Rule 100)
  • Creditors who have not submitted/lodged a Form 55 – Proof of Debt by the date specified in the Notice shall not share in the first distribution. (Winding Up Rule 100)
  • Creditors whose Form 55 – Proof of Debt are submitted and admitted after the date specified in the Notice will be paid the amounts due to them on the next distribution date.
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How would a creditor be informed of payments to be made in a dividend distribution?

The Liquidator shall place a notice of dividend in the Gazette and newspaper and shall also send a notice of dividend to each creditor whose Form 55 – Proof of Debt has been admitted.  The notice shall specify how many cents on the dollar will be paid and the date and time for the dividend.

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How may creditors access information on the liquidation’s progress?

Creditors may access the Statement of Accounts of the liquidation in progress which are filed semi-annually with the Registrar of Companies.

Relevant web links

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Notices

Dividend Distribution

1. What is a first interim dividend?

A first interim dividend is the first payment which will be made by a Liquidator, to a creditor(s) whose claims have been admitted in whole or in part (admitted creditor(s).

2. Will there be a further dividend distribution?

There will be further dividend distribution(s), until a final dividend distribution is made.

3. How would an admitted creditor be informed of the date, time and place for payments to be made in a dividend distribution?

The Liquidator shall place a Notice of a Dividend Distribution in the Gazette and Newspaper(s) and shall also send a notice of dividend distribution to each admitted creditor. The Notice published in the Gazette and Newspaper will advise admitted creditors on the date, time and place for the dividend distribution.

4. What documents must an admitted creditor produce when collecting a dividend distribution?

When collecting a dividend distribution, an admitted creditor must produce the following documents:

  • The Notice of Dividend which was sent to the creditor by the Liquidator.
  • A valid form of national identification – Identification Card, Passport or Driver’s Permit.
  • Originals of all negotiable securities or instruments for example Investment Note Certificates, Fixed Deposit Certificates and Invoices which the admitted creditor(s) holds and which formed part of his/their claim as stated in the Form 55 – Proof of Debts/General Form.

5. Can an admitted creditor(s) appoint another party to collect dividend distribution on their behalf?

If a creditor(s) cannot attend in person to collect the dividend distribution payable to them, the admitted creditor(s) must complete and sign an Authority for Delivery of Dividend which is attached to the Notice and the person collecting the dividend distribution will sign a Receipt Acknowledging Dividend. Both (payee/bearer) identification will be required for presentation. The Liquidator will, in accordance with the Authority, deliver the dividend distribution to the bearer named therein.
NOTE:

  • This is an authority only to deliver the dividend distribution NOT to make it payable to another person.
  • The Authority for Delivery of Dividend should, in the case of a Company, be signed and stamped in the Company’s name or in the case of a limited company signed by an officer of the company and stamped.

6. Can I have the dividend distribution payable to me transferred to a third party?

Where such a request is made, the admitted creditor together with the third party will be required to complete and sign a Form 62 – Authority to Liquidator to Pay Dividends to Another Person. The dividend distribution will then be re-issued in the name of the third party.

7. In instances where there is more than one claimant on the Form 55 – Proof of Debts/General Form, in whose name will the dividend distribution be prepared?

One dividend distribution will be made and it will be payable in the names of all the claimants as they appear in the Form 55 – Proof of Debts/General Form.

8. Where there is more than one claimant on the Form 55 – Proof of Debts/General Form is it mandatory for all the claimants to appear in person and sign to acknowledge receipt of the dividend distribution?

Either one or all the claimants in whose name the dividend distribution is payable can attend in person and sign to acknowledge receipt of the dividend distribution.

9. What do the words “amount per dollar” mean in a dividend distribution?

This is the dividend distribution rate of $x.xxx for every dollar of liability that is admitted by the Liquidator.

10. How does the Liquidator calculate the rate (amount per dollar) to be paid to the pool of admitted creditors in a dividend distribution?

The Total Cash available for a dividend distribution as at a stated date divided by the total eligible liabilities on the statement of affairs as at the same date.  For example assuming the total cash available as at October 30, 20xx was $100,000.00 and the total eligible liabilities as at October 30, 20xx were $8,130,081.00 then the rate (amount per dollar) would be calculated as $100,000.00 / $8,130,081.00 = $0.0123 per dollar.

11. How does the Liquidator calculate the amount payable to each admitted creditor in a dividend distribution?

Using the example in 10 above, if an admitted creditor had an admitted claim of $200.00, then that creditor will receive an amount payable of $2.46 calculated as $200.00 x $0.0123.

12. What documents must an admitted creditor produce when collecting a second dividend distribution?

When collecting a second dividend distribution, an admitted creditor must produce the following documents:

  • The Notice of Dividend which was sent to the creditor by the Liquidator.
  • A valid form of national identification – Identification Card, Passport or Driver’s Permit.
  • Documents which were stamped “First Dividend Distribution” dated and initialed by an Officer of the Liquidator for example all negotiable securities or instruments – Investment Note Certificates, Fixed Deposit Certificates and Invoices which the admitted creditor(s) holds and which formed part of his/their claim as stated in the Form 55 – Proof of Debts/General Form.

 

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