Meaning
Litigation against a company is automatically suspended once a liquidator is appointed, preventing individual actions from disrupting the collective distribution process. Under the framework of section 99, a comprehensive stay is imposed on all legal proceedings and enforcement actions against the company. This stay ensures that the liquidator can assess the company’s situation without the distraction of ongoing court battles.
It is a fundamental rule of corporate insolvency designed to treat all creditors fairly.
Automatic Stay
The suspension of actions begins immediately upon the liquidator’s appointment. Under section 99, no creditor can start or continue a lawsuit or enforce a judgment without the permission of the court. This freeze protects the assets from being dismantled by the fastest creditors.
Restructuring Opportunities
The breathing space provided by this provision allows the liquidator to evaluate the company’s future. While the stay under section 99 is active, the liquidator can seek to sell the business as a going concern. This is often more lucrative than selling the assets piece by piece.
Claim Verification
Creditors must submit their claims to the liquidator rather than suing the company. In accordance with section 99, disputes over debts are transferred from the courts to the liquidator’s proof of debt process. This creates a centralized and cheaper method of resolving claims.
