Meaning
Directors who realize that their company is insolvent and cannot continue trading must act quickly to protect creditors and minimize further losses. Under the authority of section 93, the board of directors can resolve to appoint a liquidator to take control of the company. This action is a protective measure that stops the accumulation of further debt and prevents directors from being sued for insolvent trading.
It is an emergency procedure used when a shareholder meeting cannot be convened in time.
Board Resolution
The decision must be formally documented by the directors at a board meeting. To initiate proceedings under section 93, the board must pass a resolution stating that the company is insolvent and needs to be wound up. This resolution immediately terminates the directors’ operational authority.
Creditor Meeting
The appointment by directors is temporary and must be confirmed by the company’s creditors. After a liquidator is appointed under section 93, they must call a meeting of creditors within a short period to allow them to choose a different liquidator. This ensures that creditors have the final say in the liquidation.
Asset Protection
This procedure immediately freezes the company’s assets to prevent unauthorized transfers. By appointing a liquidator under section 93, the directors ensure that the company’s remaining value is preserved for equal distribution among creditors. This acts as a shield against individual creditors seizing assets for themselves.
