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COVID-19 & Appointment Of Provisional Liquidators

As businesses start re-opening their doors and we emerge from this global pandemic, many will face the hard reality that restarting their businesses or continuing to trade is no longer an option due to insolvency.

Company directors must always bear in mind their statutory obligations to wind up insolvent companies in a timely manner. There are circumstances however where companies which are hopelessly insolvent have assets worth protecting for the benefit of its creditors (for example the goodwill attached to a business which can evaporate overnight in the event of sudden closure). In these circumstances, company directors ought to consider the appointment of a Provisional Liquidator, whose role will be to preserve any such assets in the context of an overall winding up of the company.

An application for the appointment of a Provisional Liquidator is made typically by the company itself to the High Court, grounded on a petition and an affidavit setting out the basis for the application and the case supporting the appointment of a Provisional Liquidator to protect the remaining assets of the company.

The application to appoint a Provisional Liquidator is also one which can be brought by a creditor of a company who takes the view that there is a significant danger that company assets will be or are being dissipated.

A Provisional Liquidator can be appointed by the Court under section 573 of the Companies Act 2014 (“the Act”) at any time after the presentation of a winding up petition and before the appointment of the Official Liquidator. The Courts in this jurisdiction, and indeed others, view this application as an emergency application and the Courts must be persuaded that the appointment of a Provisional Liquidator would most likely result in a significant benefit to the company’s creditors. Once appointed, the Provisional Liquidator has such powers as granted by the Court. Those powers usually include the power to take possession and secure the company’s assets, and the power to continue the business of the company pending the hearing of the petition. Where a Provisional Liquidator is appointed by the Court, the Court may also place such limitations and restrictions upon the powers of any officers of the company as it sees fit. Generally speaking, a provisional liquidator does not take steps to wind the company up but rather preserves and secures the company’s assets pending a winding up order being made and the appointment of the Official Liquidator. The Provisional Liquidator and the subsequent Official Liquidator are typically however the same person.

The option to seek to appoint a Provisional Liquidator can be a valuable tool to companies in seeking to recover monies and to ensure the preservation of company assets for their creditors during a period when the company is insolvent and has committed itself to winding up.

At BHSM, we have extensive experience in dealing with court liquidations, to include applications to appoint provisional liquidators where appropriate. If you have any queries or wish to discuss this issue or any relevant issues, please do not hesitate to contact Mark Homan ([email protected]) or Sarah O’Toole ([email protected]) in our Insolvency & Corporate Restructuring Department or by telephone on 01 440 8300.

This article is for general information purposes. Legal advice must be obtained for individual circumstances. Whilst every effort has been made to ensure the accuracy of this article, no liability is accepted by the author for any inaccuracies.