What is Provisional Liquidation?

What is Provisional Liquidation?

Provisional liquidation is an interim procedure to protect a company’s assets under specific circumstances. If you are a shareholder, director, or creditor, you may think about provisional liquidation to keep the company’s assets safe and secure. According to the law, the provisional liquidation procedure can only be initiated under particular conditions.

What situations call for provisional liquidation?

  • Investors think directors are acting recklessly. Shareholders who don’t like what the directors are doing can ask for provisional liquidation to get a third-party manager and protect the company’s interests.
  • Creditors suspect the debtor company is disguising assets: Provisional liquidation could be an option for creditors who are worried that a debtor company will hide assets or make them hard to get to.
  • The conflict between the directors of an insolvent business before liquidation: The company’s future course may be compromised if there is conflict among the board of directors. In this case, the corporation and its assets may be safe if a provisional liquidator is put in charge until the problem can be fixed.

Who can apply for the appointment of a provisional liquidator?

The appointment of a provisional liquidator may be requested by creditors, members or stakeholders, the firm, and the court. ASIC has a history of filing applications for provisional liquidators in certain circumstances. ASIC may become involved in situations where a company has misappropriated investor funds, made transactions without apparent commercial justification or violated record-keeping and account-keeping regulations. These situations may also involve the company engaging in illegal transactions under the law. At APRA’s request, a court could choose a provisional liquidator, which would be the last step.

The Advantages of Appointing a Provisional Liquidator

Asset protection and having a third party look into the company’s affairs are two of the main benefits of provisional liquidation.

Asset protection

At a crucial time when there is a high risk of asset dissipation, the provisional liquidator safeguards the company’s assets (typically experiencing financial difficulties). Provisional liquidation lets the directors and officers of a company hand over control to a neutral third party who will act in the company’s best interests.

An unbiased investigation

The company’s activities are looked at, and the temporary liquidator gives the court an honest opinion about how things are going with the company.

What happens following the appointment of the provisional liquidator?

The provisional liquidator’s job is to keep the company’s operations and assets running until the court decides how to close it down. The company will typically continue to an actual liquidation, and it is typical for the same provisional liquidator to remain an official liquidator. In other words, the provisional-liquidation stage is over because the corporation goes into liquidation. However, a successful reorganisation may cause a preliminary liquidation to stop in specific circumstances. During the provisional-liquidation period, the company could successfully restructure its operations and finances, restoring its solvency and allowing it to resume normal business activities. The time between the wind-up application’s filing and the actual wind-up hearing can be pretty significant.

Contact Australian Company Liquidations if you would like more information about company liquidations. We are registered business liquidators who provide a free 24/7 insolvency hotline for Australian directors looking for expert help. Call us right now at 1800 981 070.