Provisional Liquidation
A company can only be placed into Provisional Liquidation by a Court.
In most cases a Court will only place a company into Provisional Liquidation if the directors are in serious dispute or the assets of the company are at risk of being dissipated.
The Courts appoint Provisional Liquidators to protect the assets of the company and to maintain the status quo of the company before any final orders are made.
Most Courts will require Provisional Liquidators to file a report with the Court usually within a month of their appointment together with a recommendation as to the future of the company. The Courts will consider the findings of the Provisional Liquidator before making any final orders.
If the Provisional Liquidator forms the view that the company is insolvent, the Court will be likely to order that the Provisional Liquidation end and an Official Liquidator be appointed. The effect of this is that the winding up status of the company changes from a Provisional Liquidation to an Official Liquidation.
The following stakeholders can make an application to Court for a Provisional Liquidator to be appointed:
- A creditor; or
- A member; or
- The company (by a director).
Making an application to court for a Provisional Liquidator to be appointed can be difficult and expensive.
A solicitor needs to be instructed to draft the necessary Court application and prepare supporting affidavits. The application will need to demonstrate there is an urgent basis for the application and there is a serious risk that the company assets could be dissipated in the extra weeks it would take the Court to hear the standard winding up application that would result in the appointment of an Official Liquidation.
