Theory

1.
DEFICIENCY ACCOUNT
Preparation of deficiency account
2. Payment of preference share dividend by

liquidator
Why is Dividend on Preference Shares Compulsory?

The payment of dividends on preference shares is mandatory, and the company
must pay the dividend before paying any dividend to ordinary shareholders.
There are several reasons why dividend on preference shares is compulsory:
1. Legal Obligation: The payment of dividend on preference shares is a legal

obligation of the company. The terms and conditions of preference shares are
laid out in the company’s articles of association, and failure to pay the dividend
can result in legal action against the company.
2. Protection of Investor Interests: Preference shareholders invest in the

company with the expectation of receiving a fixed dividend at a specified rate.
The compulsory payment of dividend protects the interests of these investors and
ensures that they receive the return on their investment.
3. Access to Capital: Companies issue preference shares to raise capital, and the
compulsory payment of dividend makes these shares more attractive to investors.
The payment of a fixed dividend at a specified rate provides investors with a
predictable return on their investment, which is important in attracting capital.
4. Creditworthiness: Companies that issue preference shares are considered more
creditworthy as they have a stable source of funding. The compulsory payment of
dividend on preference shares enhances the creditworthiness of the company and
makes it easier for the company to access capital.
3. Liquidator’s remuneration
Liquidator Meaning
A liquidator refers to an entity appointed to manage the liquidation
process of a company. The appointed entity’s primary responsibility is
to gather the company’s assets and settle all claims against the
company using the assets.
Closing down a business or company by selling assets to pay creditors
and distributing the remaining, if any, to shareholders, usually in a
legal manner, is known as the liquidation of a company. It forms the
core part of the wind-up process of a company. The entity performing
liquidation must be independent and impartial.
key Takeaways
• A liquidator refers to an entity appointed for a company’s
liquidation process.
• They are provided with certain rights and duties to take care of a
company’s winding-up process.
• In a court liquidation, the court appoints the liquidator. At the
same time, there are other types of liquidations in which other
parties like shareholders initiate the appointment.
• The liquidator fee is not fixed in any state or country. It varies
with the complexity involved. Generally, only after the liquidator
is paid creditors and shareholders are compensated.
Liquidator Explained
The liquidator or insolvency professional manages many phases
spanning from the collection, preservation, and distribution of assets
and investigation and reporting about the circumstances of the
company’s insolvency. During these phases, the power of key
personnel of the company is transferred to the insolvency
professional. Altogether, the activities during these phases contribute
to the recovery of bad debts.
Duties of Liquidator
• They represent on behalf of the company or the debtor and take
control of all its assets and liabilities.
• They are entitled to investigate financial affairs, check for
offenses from the company’s side, and the reason behind its
failure.
• They have to verify the claims, evaluate the assets of the
company, and can settle the claims of all creditors using the
company’s assets.
• To prepare an asset liquidation report to present.
• From the start to end process, they are answerable to all the
company’s stakeholders, including the creditors and
shareholders.
• If the company faces any lawsuit, court case, or legal
proceedings, the insolvency professional appointed has to
defend it and be always present when called to represent the
company.
• They can draw, accept, make and endorse negotiate instruments
in the name and on the debtor’s behalf.
Remuneration of Liquidator
The liquidator sales and other tasks’ remuneration is not fixed in any
state or country. It varies with the complexity involved; in other words,
it manifests a positive correlation with business size, complexity, and
the time taken to complete the process. Generally, only after the
insolvency professional is paid creditors and shareholders are
compensated.
According to the ASIC website, if an insolvency professional appointed

reasonably believes that people associated with the company may
have committed violations and there exists no fund source to pay the
insolvency professional for their activity to scrutinize further, the
insolvency professional can apply to ASIC for funding for further
procedures.
Excluding the filing of documents and reports required by the

Corporations Act 2001 (Corporations Act), a liquidator is not obligated
to expend expenses for the liquidation process unless there are
sufficient assets to cover their charges. However, if the firm lacks
adequate resources, one or more creditors may agree to compensate
a liquidator’s charges and expenditures in conducting investigations.
In addition, if the liquidation recovers more assets, the insolvency
professional or a creditor may seek permission from the court for
compensation from funds collected to finance the recovery action by
the insolvency professional.

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1.

Preparation of deficiency account

2. Payment of preference share dividend by

Why is Dividend on Preference Shares Compulsory?

1. Legal Obligation: The payment of dividend on preference shares is a legal

2. Protection of Investor Interests: Preference shareholders invest in the

According to the ASIC website, if an insolvency professional appointed

Excluding the filing of documents and reports required by the

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