LIQUIDATION. A British joint stock company, being a purely artificial body created by law, can only be brought to an end by legal process. This legal process is called liquidating, or winding-up, the company.
A company may be wound up (I) Voluntarily, by the passing of a special or extraordinary resolution that it be wound up, and the appointment of a person to act as liquidator. The liquidator so appointed has to convene a meeting of creditors, and the creditors may, if they think fit, pass a resolution deputing some named person to apply to the court to appoint another person to act as liquidator, either with or in place of the existing liquidator. Ordi narily, the court would act upon such a request in cases where the company appeared to be insolvent. (2) Under the Supervision of the Court. This form of procedure is now practically obsolete. (3) Compulsorily. Here the procedure is analogous to that in bankruptcy. The official receiver takes charge of the company's affairs in the first instance, and it is the duty of the directors of the company to supply him with a sworn statement of its affairs. This statement of affairs is submitted by the official receiver to separate meetings of the creditors and contributories (or share holders). Each meeting has a right to nominate a liquidator, who may be the official receiver; the official receiver reports the result of the meetings to the court, and the court thereupon appoints a liquidator.
Duties of Liquidator.—Whatever form the liquidation takes, it is the duty of the liquidator (I) to realize the assets of the com pany to the best advantage; (2) to adjust the rights of contribu tories inter se; i.e., to determine what calls must be made upon the partly-paid shares of the company (if any) in order to provide for the payment of its debts, and to do justice to the different classes of shareholders; (3) to investigate the causes of liquida tion, and if necessary to institute proceedings against any persons who may have contributed to its failure; (4) to distribute the proceeds of the realization of the assets among those entitled to participate, having regard to the priorities provided by law; (5) to close the liquidation, and provide for the final dissolution of the company.
On the appointment of a liquidator, the directors and all the former officers of the company cease to function, and the liquidator becomes the only officer capable of acting in the name of the company and using its common seal. In so doing he acts as agent
of the company only.
Debenture-holders are secured creditors only to the extent of any specific or general charge that they may hold upon the assets of the company. Usually, a receiver is appointed to look after their special interests; but, in the absence of a receiver, it is the duty of the liquidator to see that, subject to payment of proper costs, the proceeds of the sale of all assets charged in favour of debenture-holders are applied (subject only to the rights of prefer ential creditors) first in satisfaction of debenture-holders' claims.
In the absence of express provision to the contrary, every share in the company carries equal rights and responsibilities. Thus, if all the shares are not fully-paid, the rights of the respective holders cannot be adjusted until either the partly-paid shares have been fully paid up, or a sum has been returned to the holders of fully paid shares equal to that uncalled upon the partly-paid shares. But, of course, no return can be made to shareholders until all the debts of the company have been paid. (L. R. D.) United States.—Although both liquidation and winding-up are terms in use in the United States, the legal process is most fre quently called dissolution ; and the dual forms refer to voluntary and involuntary dissolution. Liquidation is often used in the narrower sense of the actual disposition of the company's assets.
In a voluntary dissolution the directors usually act as liquidat ing trustees. In involuntary dissolution the receiver appointed by the court will liquidate the assets. There is no formal creditors' meeting provided for although such meetings are often called and act in an advisory capacity.
In comparing involuntary dissolution with bankruptcy, it should be noted that the bankruptcy statute excludes from its operation railroad, banking and insurance companies. The United States Supreme Court has further held that in many circumstances a public utility company may be compelled to continue operating even though its stockholders wish to dissolve. In such a case neither bankruptcy nor liquidation would be available to a rail road company. It has, however, been held that when a railroad company is operating at a continuous loss the courts and legis latures must allow it to liquidate. (J. L. WE.) LIQUID OXYGEN EXPLOSIVES: see EXPLOSIVES : Liquefied Gases.