06
Oct 2017

When will the Court appoint a Provisional Liquidator?

The appointment of a provisional liquidator is a drastic imposition into the affairs of a company and will only be done in circumstances where there are no other remedies available to maintain the status quo pending a final determination of a winding up application.

The Supreme Court of New South Wales In the matter of Plutus Payroll Australia Pty Limited [2017] NSWSC 1041 reaffirms the principles concerning the appointment of a provisional liquidator.

Background

Plutus Payroll Australia Pty Limited and a number of related entities (Companies) were involved in the business of providing payroll services.  The Companies are currently the subject of one of Australia’s largest tax fraud investigations.

On 6 June 2017, the Deputy Commissioner of Taxation (DCT) applied for orders under section 461 of the Corporations Act 2001 (Cth) (Act) for the winding up of the Companies on the just and equitable ground and under section 472 of the Act appointing provisional liquidators to the Companies.

What the Court said

Having regard to the evidence of the DCT, the Court was satisfied that prima facie there was a strong case for a winding up order in respect of each of the Companies on the ground of insolvency and on the just and equitable ground.

Turning to the question of whether there was sufficient cause for the appointment of provisional liquidators to the Companies, the Court noted the following factors in favour of the position that provisional liquidators be appointed: –

  1. The history of the Companies – the Companies were engaged in phoenixing arrangements which bespeaks a risk that any one of the Companies has recoverable assets;
  2. Directors of the Companies – the recorded directors were not in truth, acting as the directors; and
  3. Public interest – the Companies have apparently incurred enormous taxation liabilities and should not be permitted to be held out any longer as trading entities.

Having regard to these factors, the Court considered it appropriate to appoint provisional liquidators to the Company pending the final determination of the winding up application.

Take away point

The case sets out some of the factors the Court will consider when determining whether to appoint provisional liquidators.  Given the drastic impact of such a step on a company, the Court will only make such an order when there are no other alternatives to preserve the status quo and to protect the public interest.