Why the liquidator gets paid first – by Bede Henderson

A question I get a lot, usually from a creditor who already suspects the answer:

"If the liquidator is paid first, how does anyone else get paid?"

It's a fair question, and the honest answer concedes part of it. The liquidator is paid first. The costs of the liquidation come off the top.

But paid first is a long way from paid everything. Creditors don't go unpaid because of the fee. They go unpaid because the company has failed owing more than it can pay. The fee pays for the process that gives everyone else a share of what's left.

Take the process away and imagine the alternative.

A company fails owing twenty creditors. There is no single process. No independent person controlling the assets. No statutory order of priority.

Each creditor moves at once. The fastest creditor, the most aggressive creditor, or the creditor closest to the director, gets what they can.

Everyone else is left arguing over what remains.

At that point, payment has little to do with the strength of the claim. It becomes a scramble.

Liquidation replaces that scramble with a process.

Assets are identified and controlled. Claims are tested. Priorities are applied. Distributions are made according to the statutory order, not according to who pushed hardest.

The director is also required to answer questions they would otherwise avoid.

That is the part people often miss.

The liquidator is paid first because someone has to run the process that produces a distribution at all.

A liquidator is not there to "take the money". A liquidator is there so the creditors aren't left fighting over it.

Bede Henderson is a Wellington-based Chartered Accountant and manager with Waterstone Insolvency