Provisional liquidation is a court supervised process to protect a business and assets whilst the provisional liquidator prepares a report for the court recommending the best outcome for creditors and stakeholders. A provisional liquidation can only be activated by making an application to court. We explore the most common situations which may give rise to making an application to court for a provisional liquidator.
- Director disputes effecting the business operations
If the company directors are embroiled in an irreversible dispute which is effecting the operation of the business or the assets are at risk of being dissipated then the court may appoint a provisional liquidator. The powers of the directors would be suspended and the provisional liquidator would be in full control of the company whilst a more permanent solution was found.
- Shareholder disputes or concerns
Likewise if shareholders are embroiled in an irreversible dispute which cannot be resolved then one solution may be to apply to court for a provisional liquidator to be appointed. The court appointed liquidator in this instance may value the shares in the business to facilitate a sale.
Alternatively the shareholders may become concerned about the activities of the directors, i.e. the directors are disposing of assets or are otherwise acting improperly.
How are provisional liquidators appointed?
It is important to understand that a provisional liquidation is only a temporary measure until the court deals with the winding up application. Once the court appoints a provisional liquidator, the court will request that the provisional liquidator provides a report setting out all available options to the stakeholders involved.
After the court receives and considers the report by the provisional liquidator, the court may order any of the following:
- For the company to be wound up and a Liquidator appointed; or
- For the provisional liquidation to end.
If you are a director of a company or a shareholder of a company and are involved in an irreversible dispute or the assets are at risk of being dissipated then contact Insolvency Services Australia for expert advice. We offer FREE initial consultation.
Please call our toll-free hotline – 1800 003 883.