Provisional Liquidation

IMG

Why commence a provisional liquidation?

The appointment of a provisional liquidator is sought when a creditor, or a shareholder (also referred to as a member) is concerned about the potential for the dissipation of the assets of the company, or the manner in which the affairs of the company are being managed by the directors.

How is the company placed into provisional liquidation?

The appointment of a provisional liquidator can only be made via an application to the court. Parties should seek their own independent legal advice in relation to the appointment of a provisional liquidator.

The appointment of a provisional liquidator can only be sought after an application has been filed for a court liquidation.

The applicant, usually a creditor or a member of a company, will have already filed an application to the court to place the company into liquidation.

Owing to further concerns that the company may dispose of assets, company records may be at risk, or other concerns regarding the directors of the company, the applicant may seek the appointment of a provisional liquidator as an interim measure until any further determination is made by the court to place the company into liquidation.

The purpose of the appointment of a provisional liquidator is to preserve the assets of the company until such time that any further orders are made by the court.

What is the effect of the appointment of a provisional liquidator?

The main purpose of the appointment of a provisional liquidator (who must be a registered liquidator) is to maintain the status quo, and to protect the assets of the company.

The appointment of the provisional liquidator is implemented is to limit the powers of the directors, in order that the assets and undertakings of the company are preserved.

As the name implies, the appointment is provisional, that is temporary, or interim.

The court orders will usually require the provisional liquidator to lodge a report with the court regarding the company’s financial position. If the company is insolvent, it is probable that an order will be provided by the court that the company be wound up, and the company will pass into a court liquidation.

The provisional liquidator will often become the liquidator of the company, and the winding up of the company will continue in the same manner as a court liquidation after such orders are granted.

The role of the provisional liquidator is different to the appointment of a liquidator in a court liquidation or a creditors voluntary liquidation.

Liquidators are granted far reaching powers to gather in and realise assets of the company, investigate the company’s affairs, commence litigation, and distribute the assets of the company by the Corporations Act.

The powers of a provisional liquidator are different, as those powers are granted pursuant to the orders provided by the court. The orders are usually granted to protect and preserve the assets of the company, and to maintain the status quo, until further orders of the court are provided.

Having Insolvency Concerns?

Please contact KHR Insolvency for an obligation free consultation to discuss your circumstances.