Calculation of Liquidator’s Remuneration

Calculation of Liquidator’s Remuneration

Usually, the remuneration consists of a commission on assets realized plus a commission on the amount paid to unsecured creditors. When a company goes into liquidation the costs of the proceedings are paid out of its assets in priority to creditors’ claims.

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 a 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:

The amount available for payment = Total receipts – Total payment( up to the payment made to debenture holders)

Then the 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 shareholders, the following equation can be used:

The 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

 

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