What a liquidator must not do during a company's liquidation in 2025

Who is a liquidator and what are their powers and duties?

Although a liquidator has considerable power, this power is strictly limited by the purpose of the liquidation. This fundamental limitation is key to understanding what constitutes an abuse of their powers.

Beyond the law: Specific cases of liquidator misconduct

The law sets clear boundaries for a liquidator's activities. There are a number of specific actions that a liquidator must not commit and which constitute an abuse of their powers:

• Unauthorised disposal of assets: A liquidator must not use company assets for personal gain or for purposes unrelated to the liquidation. It is also forbidden to sell assets below market value without proper justification and transparency, which could harm creditors or shareholders. Concealing or destroying assets that should be part of the liquidation estate is also unacceptable.  

• Conflicts of interest: A liquidator should avoid situations where their personal interests conflict with the interests of the company in liquidation and its creditors. This includes dealing with related parties (e.g., family members, other businesses in which they have a stake) without proper notification and approval, and on terms that could be disadvantageous to the company in liquidation. Favouring certain creditors or interested parties without a legitimate legal reason is also prohibited.  

• Delays and inaction: A liquidator must not unreasonably prolong the liquidation process, which would lead to unnecessary costs and uncertainty for the parties involved. They are also obliged to actively seek, secure, and monetise the company's assets within a reasonable timeframe.  

• Breach of the duty to act with due managerial care: Under Czech legislation, a liquidator is required to perform their function with professional care and diligence, similar to a member of a statutory body. Ignoring legitimate claims or inquiries from creditors or debtors, or failing to act on matters that require their attention, constitutes a breach of this duty.  

• Exceeding statutory authority: A liquidator may only perform acts aimed at the liquidation of the company. Initiating new business activities on behalf of the company in liquidation or other activities that are not necessary for its dissolution are prohibited.  

Common types of liquidator misconduct and their potential impact

When a liquidator breaks the law: What is the courts' stance?

The activities of liquidators are subject to judicial supervision, and in case of a breach of the law, liquidators can be held accountable. The courts assess whether the liquidator has acted with due managerial care and whether their actions were aimed at the proper termination of the liquidation and satisfaction of creditors. In cases where a liquidator acts contrary to the law and causes damage, they may be obliged to compensate for this damage.

There are also cases where courts have removed a liquidator from office for a serious breach of their duties. In extreme cases, where the liquidator's conduct constitutes a criminal offence, criminal prosecution may also occur. For example, the Supreme Court of the Czech Republic dealt with a case of a liquidator who mismanaged the company's funds and provided a risky loan that was not repaid.

In this case, the liquidator was found guilty of breach of duty in the administration of third-party property. Another case involved an insolvency administrator and liquidator who was sentenced to imprisonment and a ban on activities for his criminal conduct. The courts also emphasize that a company in liquidation may only perform legal acts aimed at liquidation, thereby limiting the liquidator's powers.  

Your rights in liquidation proceedings: Protection against unlawful conduct

As a creditor, you have the right to be informed of the company's entry into liquidation. You should be invited to file your claims within a specified period. You also have the right to have your claim satisfied from the proceeds of the sale of the company's assets according to the established priority. If you suspect unlawful conduct by the liquidator, you have the right to file a complaint with the court that appointed the liquidator, or to file a lawsuit. The court may, at the request of a person who proves a legal interest, remove a liquidator who is not properly performing their duties.  

As a debtor (in the case of the liquidation of your assets or as a former owner/shareholder of the liquidated company), you have the right to be informed about the progress of the liquidation. After all creditors have been satisfied and the costs of liquidation have been paid, you have a potential claim to receive the remaining assets (the liquidation balance). In this case, too, you have the right to challenge the liquidator's actions if you believe they are unlawful.  

If you suspect unlawful conduct by a liquidator, you can take the following steps:

• Filing a complaint: You can file a formal complaint with the court that appointed the liquidator or with other relevant authorities.  

• Filing a lawsuit: You have the option to initiate legal proceedings against the liquidator to claim compensation for damages caused by their unlawful conduct or to challenge specific actions.  

• Requesting court intervention: You can ask the court to review the liquidator's activities or to remove them from office if there is evidence of their misconduct.  

• Consulting a lawyer: In any case, it is recommended to consult a law firm specializing in liquidation proceedings as soon as possible. They will help you understand your rights and choose the most appropriate course of action.

Risks and financial losses: The consequences of a liquidator's improper conduct

Improper conduct by a liquidator can have serious negative consequences and lead to significant financial losses for all parties involved. For creditors, this may mean a reduction in the amount of satisfaction of their claims due to the depreciation or inefficient sale of assets.

For the company and its owners/shareholders, there may be a loss of assets due to their misappropriation or unauthorised disposal. Delays in the liquidation process increase administrative costs and prolong the period of uncertainty. In the case of unlawful conduct, legal liabilities and penalties may also arise. For business owners, there may also be damage to their reputation.

How to protect yourself from the unfair practices of liquidators: Practical advice

To minimise the risk of unfair practices by a liquidator, we recommend that you:

• Thoroughly vet the liquidator: If possible, find out information about their previous experience and reputation.

• Stay informed: Actively monitor the progress of the liquidation proceedings and regularly ask the liquidator for information.

• Carefully review all documentation: Thoroughly study financial reports, asset valuations, and proposed transactions.

• Attend creditors' meetings: If you are a creditor, actively participate in meetings to stay informed and to voice any concerns you may have.

• Document everything: Keep all correspondence, transaction records, and any suspicious circumstances.

• Seek legal assistance in a timely manner: If you have any concerns or suspicions of unlawful conduct, do not hesitate to contact a law firm specializing in liquidation proceedings as soon as possible. Timely legal intervention can prevent more serious problems.  

• Know your rights: Be aware of your rights as a creditor or debtor in liquidation proceedings.

• Don't be afraid to challenge suspicious actions: If you have legitimate doubts about the liquidator's conduct, do not hesitate to raise them with the liquidator, the court, or your legal representative.

We understand your concerns: The emotional aspects of liquidation

We know that the liquidation of a company can be a challenging time for you, full of uncertainty and anxiety, whether you are an owner, creditor, or debtor. We understand your concerns about the fate of your assets and financial stability. We assure you that you are not alone in such a situation and that there are legal mechanisms to protect your interests. Seeking expert legal assistance is a proactive step towards ensuring that the liquidation process is conducted in accordance with the law and that your rights are fully respected.

Conclusion: Don't leave your assets to chance – turn to the experts

The assets of a company in liquidation are not without protection, and liquidators do not have unlimited power. Their activities are strictly regulated by laws that protect the interests of all parties involved. Improper conduct by a liquidator can lead to serious financial losses and other negative consequences. Therefore, it is crucial to know your rights and not to hesitate to act if you suspect unlawful conduct.

We strongly recommend that you seek professional legal assistance from a law firm with experience in liquidation proceedings. Our experienced Prague-based legal team will help you navigate the complex process of liquidation, ensure the protection of your rights, and minimise the risk of financial loss. Contact us today so we can provide you with the necessary support and expert advice.