Provisional liquidation

Provisional liquidation is a process which exists as part of the corporate insolvency laws of a number of common law jurisdictions whereby after the lodging of a petition for the winding-up of a company by the court, but before the court hears and determines the petition, the court may appoint a liquidator on a "provisional" basis. The provisional liquidator is appointed to safeguard the assets of the company and maintain the status quo pending the hearing of the petition. Unlike a conventional liquidator, a provisional liquidator does not assess claims against the company or try to distribute the company's assets to creditors.

In practice most instances of applications for a provisional liquidator involve some type of allegation of fraud or other misconduct relating to the company.

Typically, an application for the appointment of a provisional liquidator is made by either:

The remedy is an exceptional one, and most instances of applications for a provisional liquidator are made because of concerns about some type of material impropriety. In exceptional cases it is also possible for public authorities to apply for the appointment of a provisional liquidator to protect the public interest from fraud or other similar conduct, although this is much less common.

The court invariably has a discretion whether to appoint a provisional liquidator. A court will not normally approve the application unless it is satisfied that there is a strong liklihood that a liquidator will be appointed on the substantive application. But even if the company is likely to go into liquidation, provisional liquidation is still an exceptional interim or "emergency remedy". There needs to be special reasons for the appointment of a provisional liquidator in the interim period. Normally this is because the assets must face a high risk of dissipation or there must be some other urgent reason why a liquidator is required for the interim period.

Applications are most likely to be granted in situations where:

Conversely, because there needs to be some urgency or risk of dissipation of assets, applications are likely to be refused if:

Given their nature, applications for provisional liquidation are often made urgently and without giving notice to the company or its directors. Where the application is made without notice:

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