A provisional liquidator is an insolvency practitioner who is appointed to a company as an interim liquidator over specific assets, before the winding up petition against a company is heard, or when it has been heard but not fully dealt with by a court.
A provisional liquidator may either be an Official Receiver, or an Insolvency Practitioner. Both have the same role and powers. The Official Receiver is a government appointed official.
Contents:
- When are provisional liquidators used and by who?
- What do provisional liquidators do and what are they allowed to do?
- How do provisional liquidators get paid?
- What does it mean for a company with a provisional liquidator in place?
- What does it mean for a director of a company with a provisional liquidator?
- How do you apply to put in place a provisional liquidator?
- How does provisional liquidation come to an end?
- How can we help?
When are provisional liquidators used and by who?
A provisional liquidator is appointed by the court on an emergency basis in order to protect or preserve a company’s assets while waiting for the winding up of the company and the appointment of the full liquidator. An order of this kind will only be granted by a court if it is clear that if a provisional liquidator is not appointed, there is a serious risk that those assets will not be preserved, which will cause additional losses to creditors of the company once it is wound up.
Usually a provisional liquidator will be appointed at some time between a creditor filing a petition at court, and the time the winding up order is actually made at court, which is usually a matter of a few weeks, depending on the court. However, if very urgent, a provisional liquidator can be appointed before the winding-up petition has been presented. This is very unusual however, and the creditor would need to commit to present their petition very quickly thereafter.
Appointing a provisional liquidator is not something that the courts will do lightly because it can have very serious consequences for a trading company. Therefore, a court will want to be sure that a winding up order is likely to be made and that there are strong reasons for believing the company’s assets are at immediate risk.
What do provisional liquidators do and what are they allowed to do?
The court will clearly set out what the provisional liquidator can do in the order appointing them. A provisional liquidator is not appointed over the whole of the company, only to deal with the assets that are the subject of the order.
How do provisional liquidators get paid?
If the Official Receiver is provisional liquidator, then the creditor who brought the application will need to pay a deposit to the court to cover their fees. If the company is then wound up, these costs will be met by the company.
When the company goes into liquidation, which it almost certainly will, the costs of the provisional liquidator will be met as one of the first costs of the liquidation. If a winding-up order is not made, the provisional liquidator will be paid out of the property of the company. Inevitably an insolvency practitioner will require an indemnity for their costs and expenses from the person applying to appoint them, in case the company doesn’t go into liquidation or in case there are not enough funds in the company to meet their fees and expenses if it does.
What does it mean for a company with a provisional liquidator in place?
The assets over which the provisional liquidator is appointed will no longer be available to the company to do with what it wants. Depending on what those assets are, it may have limited use of them, but the priority of the order of appointment is to preserve those assets.
Once the court makes the order appointing the provisional liquidator, no actions or proceedings against the company or its property can be commenced or continued without the permission of the court. This is the same as if the company were in full liquidation.
What does it mean for a director of a company with a provisional liquidator?
The directors remain in place as usual, until a full winding up order is granted and a liquidator is appointed. All the directors duties and responsibilities remain.
How do you apply to put in place a provisional liquidator?
An application is made by a person or entity who has brought a winding up petition against a company. This will usually be a creditor, but is not limited to a creditor, and can include a shareholder, or the government in the public interest for example.
The application needs to show that a winding-up order is likely to be made in due course, meaning that they meet the criteria in order to be able to present a winding-up petition, and that the petition debt is not likely to be seriously disputed. It is also necessary for the company to be insolvent.
Usually an application is made giving notice to the company to attend a hearing of the application. However, if there is a risk of assets going missing or being destroyed if notice is given, it is possible to obtain an order without giving advance notice to the company. If that is the case however, the court will inevitably require the applicant to undertake to pay any damages caused if the order is not justified, and the court will bring the parties back to court to hear any opposition as soon after the order is made as possible so it can be reversed if necessary.
The application will be made in the usual way, by application notice and supporting witness statement(s). There will be a hearing at court when the court will consider the evidence.
Once the order is granted it must be served on all of the relevant parties, and advertised in the London Gazette.
How does provisional liquidation come to an end?
If a winding up order is made, then it is usual for the provisional liquidator to then be appointed as the full liquidator and no notice of termination is needed.
If not, it can be terminated by the provisional liquidator themselves applying to court for their own termination, or by anyone else applying who would be entitled to apply for the appointment of a provisional liquidator.
If no winding up order is made then the provisional liquidation will be terminated and notice must be given to all parties including Companies House, and the notice advertised in the London Gazette.
How can we help?
If you are owed money and a company is not paying, you can apply to wind up the company if there is no legitimate dispute over the debt. If you are worried that the company’s key assets may be destroyed or go missing before you get to court, then contact one of our Insolvency Solicitors who can help you apply for a provisional liquidator. Equally, if you find yourself facing an order for a provisional liquidator, contact us immediately to discuss your legal options.
