Association of Chartered Certified Accountants (ACCA) Certification Practice Test

In which procedure does a liquidation committee operate?

1. Compulsory liquidation only

2. Creditors voluntary liquidation only

3. Both compulsory liquidation and creditors voluntary liquidation

4. Liquidation does not involve a committee

The correct answer is: Both compulsory liquidation and creditors voluntary liquidation

The liquidation committee plays a crucial role in both compulsory liquidation and creditors' voluntary liquidation. In these processes, the committee acts as a representative body for the creditors, allowing them to participate in the management of the liquidation process and ensuring that their interests are considered. In compulsory liquidation, the committee is generally formed once a winding-up order is made by the court. The purpose of this committee is to oversee the actions of the liquidator and to provide guidance in terms of the direction the liquidation should take, particularly concerning the realization of assets and distribution of proceeds to creditors. In creditors' voluntary liquidation, when insolvent companies elect to liquidate, a committee serves a similar function. In this scenario, the creditors have a say in the proceedings right from the start, and the committee allows them to collectively manage the process and make decisions regarding the liquidator's actions. This dual function across both types of liquidation is essential, as it enhances transparency and accountability within the liquidation process, ensuring that the interests of all creditors are properly represented and maintained throughout the procedure.