Provisional Liquidation

A Court may appoint a Provisional Liquidator at any time after the filing of a winding application but before the making of the winding up order.  However, there must be good grounds for the appointment of a Provisional Liquidator.  The usual reasons to appoint a Provisional Liquidator are where there is a concern about the dissipation of assets or because there is some need for urgency in the appointment.  The applicant will usually be required to give an undertaking to the Court as to damages.

 

The following can apply for the appointment of a Provisional Liquidator:

• a creditor;
• a shareholder;
• the company;
• the Australian Securities and Investments Commission; or,
• the Australian Prudential Regulatory Authority.

The Provisional Liquidator’s principal duty is to preserve the status quo, until the Court can determine whether the company should be wound up.  A Provisional Liquidator may trade-on a company’s business.

 

A provisional liquidation is an interim insolvency administration.  Most provisional liquidations end because the company is wound up.  However, in some circumstances the company’s financial affairs are reorganised, the provisional liquidation ends and the company is restored to solvency.

 

The main advantages of a provisional liquidation are:

• it ensures that assets at risk of dissipation are removed from the control of the company’s directors or officers;
• an independent person investigates the affairs of the company and reports to the Court for the purpose of determining the company’s future; and,
• it is a remedy that may be utilised by an unsecured creditor, with some restrictions.

Provisional liquidation is a relatively infrequently used form of insolvency administration.