“Liquidating a company is usually straightforward and there is no need for directors to trouble themselves about the process,” Lyndon continues.One reason for this is that the enforcement of the term would, in effect, require an equitable order of specific performance.“So long as directors know to come to us for assistance as soon as they face insolvency or liquidation that is the main thing.” In fact, directors whose companies go into liquidation do not play much of a role in the process.As soon as the liquidation process begins the directors are relieved of their obligations, leaving them free to move on to other companies or business interests.Receipt of liquidated damages and intimately linked with the purpose of the profit-making apparatus, is a capital receipt.The amount received by the assessee towards compensation for seterilization of the profit earning source is not in the ordinary course of business.
In Australia, the definition of liquidated damages applies to the situations where upon the failure of a primary stipulation, imposes a detriment to the first party or a benefit to the second party by a secondary stipulation collateral to the primary stipulation (i.e. UK bank and credit card customers were being charged as much as £39 for a single transaction that took them over their credit limit.
However, courts sitting in equity will seek to achieve a fair result and will not enforce a term that will lead to the unjust enrichment of the enforcing party.
Damages that are sufficiently uncertain may be referred to as unliquidated damages, and may be so categorized because they are not mathematically calculable or are subject to a contingency which makes the amount of damages uncertain.
Contracts under common law require there to have been some attempt to create an equal or reasonably proportionate quota between the damages made and the actual loss.
Parties must not lose sight of the principal compensation and they must keep the time of execution and the difficulty of the calculations in mind when drafting the contract.