You should consider the possibility of placing a company into provisional liquidation if there is a risk that a company’s assets will be dissipated to the detriment of that company and a creditor or member of a company, a party can consider putting the company into liquidation in this scenario.

The power of a Court to appoint a provisional liquidator to a company stems from section 472(2) of the Corporations Act 2001 (Cth) (Act).

Pursuant to section 472(2) of the Act, a provisional liquidator of a company has either powers:

  1. Of a liquidator pursuant to the Act;
  2. That the rules of the Court that appointed them; or
  3. That the Court specifically orders that they have.

The grounds on which a provisional liquidator may be appointed to a company are infinite and all that really has to be shown is that there is a bona fide ground for making an order for the appointment of a provisional liquidator. See Re New Cap Reinsurance Corporation Holdings Ltd [1999] NSWSC 536 [23].

The appointment of a provisional liquidator to a company, is an extremely serious step and will not be taken lightly by the Court, it is incumbent upon any person seeking to appoint a provisional liquidator to show that there is a real and present threat to a companies assets were the status quo to continue. See Australian Securities Commission v Solomon (1996) 19 ACSR 73 at [80].

In general terms, the following criteria is important in a Court’s consideration of whether to appoint a provisional liquidator:

  1. Whether an application to wind up a company is on foot;
  2. Whether there are reasonable prospects of a winding up order being entered on a final basis;
  3. Whether or not the assets of the company are at risk;
  4. Whether or not an independent investigation into a company’s affairs is warranted;
  5. If there has been a history of non-compliance with the Act;
  6. If there is a belief that the ongoing existence of a company is contrary to the interest of shareholders;
  7. Whether or not a sharesale offer has been made; and
  8. If undertaking have been offered seeking to resolve the dispute.

An alternative to appointing a provisional liquidator to a company, could be seeking undertaking that would preserve that assets of the company or otherwise prevent conduct that would form the basis for an application to appoint a provisional liquidator. In the matter of Therma Truck Pty Limited [2016] NSWSC 266 at [21].

If you have any legal questions about commercial and property law, reach out to our team of qualified corporate and commercial lawyers at Chamberlains Law Firm!