Applications for appointment of a provisional liquidator are presented in Australia under section 472(2) of the Corporations Act 2001 (Cth) (the Act).
An application to appoint provisional liquidators under section 472(2) of the Act may be filed any time after the filing of a winding up application and before the making of a winding up order, or any decision on an appeal against the making of a winding up order.
The application may be brought by company creditors or members of the company itself. The onus is on the applicants to show a good ground for winding up the company based on the winding up application, and that it is in the interest of the company’s creditors or members, or in the public interest for the Court to exercise its discretion and appoint provisional liquidators (Re McLennan Holdings Pty Ltd (1983) 7 ACLR 732 at 738).
An application to appoint provisional liquidators may, in the case of the urgent need to protect company assets at risk, be made ‘ex parte’ or without notice to any other interested parties, provided the applicant makes full and frank disclosure of all relevant matters to the Court (Re Branchport Pty Ltd [2004] FCA 1015). Failure to make the application on notice to any of the other parties interested in the outcome will run the risk of the order to appoint provisional liquidators being revoked.
Filing an application to appoint of provisional liquidators means filing a Form 3 Interlocutory Application under rule 2.2(4) of Schedule 1A to the Uniform Civil Procedure Rules 1999 (Qld) (UCPR) in the Supreme Court together with evidence by affidavit to support the application. Upon filing, the Court allocates a hearing date for the application to be heard, endorses this on the application, and returns the documents to the applicant to arrange service on the company and any other interested parties.
Service of the application to appoint provisional liquidators usually occurs by sending the application and the supporting affidavits by prepaid post to the registered office of the company (section 109X(1)(a) of the Act). However, in cases of extreme urgency to protect company assets, service by other more immediate means such as email, courier or personal service on directors may be allowed in the Court’s discretion.
Once the application has been served, the hearing of the application can proceed on the hearing date. If the company or its directors do not arrange to be represented at the hearing, the Court will order that the company be placed under the control of the provisional liquidators designated in the application provided they consider that the requirements under the Act have been met. A registered liquidator (who has given their consent and is not subject to any conflict of interest) may be appointed as provisional liquidator of the company.
Once appointed the provisional liquidators will take control of the company and ensure that the company’s divisible assets are preserved for distribution amongst its creditors in the event a winding up order is ultimately made.
The alternative to failing to attend the hearing of the application to appoint provisional liquidators, is for the company to arrange to be represented at the hearing and to oppose the application. If the company intends to do this, it must file a Form 4 Notice of Appearance and a supporting affidavit under rule 2.9(1)(a) of Schedule 1A UCPR and serve that on the applicant at least one day before the hearing (rule 2.9(1)(b)(ii)). Common grounds relied on to oppose the application are:
- The amount claimed in the winding up application is not owed by the company because no debt was owed to the applicant creditor, the debt was paid, or the judgment relied on is being set aside, and establishing this is material to proving the company is solvent
- The company is able to rebut any presumption of insolvency relied on because it can pay its debts and is not insolvent
- The company is able to prove it is solvent and there is a genuine dispute about the debt claimed
- There is a defect in the material or non-compliance with the procedures required to obtain a winding up order
- There are no assets of the company at risk of dissipation sufficient to justify appointing a provisional liquidator
If the company’s opposition to the application is successful, the application may be dismissed by the Court.