discuss the order of payment adopted by liquidator also discuss method of calculating the liquidator remuneration
Answers
Explanation:
Calculation Of Liquidator's Remuneration
The liquidator's remuneration can be computed in the following ways:
1. Percentage On Assets Realized
Here, assets realized means the amount collected from the realization of fixed assets, current assets and other assets, other than fictitious assets. The cash and bank balance should not be included in total assets for the calculation of remuneration. But in the question, if the cash and bank balance are given in the list of assets, then cash and bank balance should be included in the total assets for the calculation of remuneration.
In the case of collateral securities depositing against secured creditors, if nothing is mentioned in the question, the total assets should include the full amount of collateral securities for the computation if remuneration. But if the securities are realized by creditors and only the surplus sent to the liquidator, then total assets should include only surplus amount realized from collateral securities. Thus the liquidator's remuneration is calculated as mentioned below:
Liquidator's Remuneration= Assets realized X Remuneration Percent/100
2. Percentage On Amount Distributed To Unsecured Creditors
Sometimes, the liquidator also receives commission on the amount distributed to unsecured creditors. For the computation of the commission, firstly the amount available for payment or surplus must be ascertained in the following way:
Amount available for payment = Total receipts - Total payment( up to the payment made to debenture holders)
Then amount available may or may not be sufficient for the payment of unsecured creditors amount. If the amount is sufficient, the commission is calculated as follows:
Commission = Unsecured creditors X Commission rate/100
If the amount available is not sufficient for the payment of unsecured creditors, the commission will be determined as follows:
Commission = Amount available X Commission rate/100+ Commission rate
3. Percentage On Amount Distributed To Equity Shareholders
For the calculation of this commission, firstly the amount available for equity shareholders should be ascertained. For finding out the amount available for equity share holders, the following equation can be used:
Amount available = Total receipt - Total Payment ( up to the payment made to preference shareholders)
If the amount available is sufficient for the payment of equity share capital amount:
Commission = Equity share capital amount X Commission rate/100
If the amount available is not sufficient:
Commission = Amount available X Commission rate/100+ Commission rate
Liquidation payment priority order – who gets what, and when
When a company goes into liquidation, there is a defined order of who gets what and when. Below we explain the rules governing the priority of payment to those owed money.
Where a creditor stands in the order of payments to be made and what they are likely to receive depends on three things:
The types of creditors involved in the process and what they are owed
The size and value of the assets available, and how easily they can be turned into cash
What fees will be incurred by a liquidator in carrying out their duties