MARCH 2011
ANNEX 1 - FREQUENTLY ASKED QUESTIONS
What is a provisional liquidation?
A provisional liquidator is appointed where a creditor or the Secretary of State has presented a petition to wind up a company and is concerned that assets are in jeopardy or that for the business to continue until the winding-up petition is heard is not in the public interest.
Who can be a provisional liquidator?
Any insolvency practitioner or the official receiver can be a provisional liquidator. An insolvency practitioner is most likely to be appointed where a trade creditor is presenting a petition on insolvency grounds and is worried that assets will disappear before the company is wound up. The official receiver can also be appointed in these circumstances, but it is less likely.
See Part 1 – Proceedings up to the making of an order for the appointment of a provisional liquidator, for further details.
What leads up to the appointment of the official receiver as provisional liquidator?
Public Interest Unit (PIU) will act in all cases where the applicant is the Secretary of State or otherwise in cases which fit the PIU criteria. Such cases include those of serious non compliance, including carousel and related fraud cases on the presentation of a petition by HM Revenue and Customs. In other cases (which will be rare) the local official receiver will be appointed by the court as provisional liquidator.
When a member of the public is concerned with the way in which a business is operating they can report the facts to the Department of Business Innovation and Skills (BIS). This will usually be passed to Company Investigations (CI). If CI consider that there is something which needs investigating they will get authority from the Secretary of State (under the Companies Act 1985 section 447) and look into the business. During this process, the company and its officers have a duty to produce to CI any papers or information it requests.
Following their investigation, CI will decide whether, in its opinion, the business should be closed ‘in the public interest’. If so, they will present a petition to the court to wind the company up on the grounds of public interest and will request the appointment of a provisional liquidator.
See Part 1 – Proceedings up to the making of an order for the appointment of a provisional liquidator.
Does the company know what is happening?
The petition can be presented either with or without notice to the company.
‘With notice’ is where CI tell the company that it intends to apply to have the company wound up, and why. This will usually bring a response from the company and CI may negotiate a change in the company’s business practices. This will often mean that a provisional liquidator will not be appointed. See Part 1, paragraph 2.18.
‘Without notice’ means that CI go to court without telling anyone (except PIU). Their petition will be presented in open court, but the hearing will not be on any of the court listings. CI will do this where they consider that the company’s business should be brought to the courts attention immediately and there is a real danger either that assets will disappear, or that members of the public are suffering to such an extent that urgent action is required. It is very rare that a petition presented without notice fails to get a provisional liquidator appointed. However, it is a very big decision for the court to appoint a liquidator over a company without even giving the company a chance to have its say. CI will have done a lot of work and have good grounds to present to the court. See Part 1, paragraphs 2.19 to 2.20.
What is the official receiver’s role in the provisional liquidation process?
The official receiver as provisional liquidator is an officer of the court. He/she is independent of the process. He/she neither makes the case for BIS, nor acts for the company or its creditors.
If creditors request information on why the official receiver was appointed they should be told what the official receiver’s functions are (see below). If they want to know the grounds upon which BIS presented a petition, they should be directed to the court where a copy of the petition is a matter of public record.
See Part 2 – Content of order, duties and functions of provisional liquidator.
What are the official receiver’s duties on appointment as provisional liquidator?
The official receiver has no statutory duties. What he/she is required to do as provisional liquidator is contained within the order. CI use a standard form of petition which contains requirements that PIU are familiar with. The official receiver should always refer to the petition to ensure that he/she has sufficient authority to carry out his/her duties effectively and may suggest alterations to CI.
The functions of the official receiver do not usually vary. With few exceptions he/she is required to:
See Part 2 – Content of order, duties and functions of provisional liquidator, and Part 3 – Action following appointment of official receiver as provisional liquidator.
What is the difference between a provisional liquidator and a liquidator?
The key difference on a day to day basis between the appointment of a provisional liquidator and a liquidator is a provisional liquidator is only required to investigate the company’s affairs in so far as it is necessary to discover, protect and recover assets. The liquidator has a statutory duty to investigate the affairs of the company, establish the causes of its failure and to report on the conduct of the directors. This is not the case in a provisional liquidation.
The official receiver should think of the provisional liquidator stage as a holding phase – he/she simply preserves and protects the company’s position until such time as the court decides whether it should be wound up.
See Part 2 – Content of order, duties and functions of provisional liquidator, and Part 3 – Action following appointment of official receiver as provisional liquidator.
What is the directors’ role once a provisional liquidator is appointed?
Similar to a normal winding up the director has a statutory duty to co-operate with the office holder, which includes attending for interview, providing information and delivering up assets and records. He/she may also instruct third parties on behalf of the company in the defence of the petition. Beyond this he/she no longer has a role in the company.
See Part 2 – Content of order, duties and functions of provisional liquidator.
Can a copy of the section 447 report be provided to an insolvency practitioner?
The report submitted by CIB under the Companies Act 1985 section 447, cannot be disclosed to any unauthorised third parties, including any liquidator that may be appointed to deal with assets. The official receiver is entitled to receive a copy of the report under paragraph 36 of Schedule 15D of the Companies Act 1985, the liquidator is not provided for under this act. In fact, disclosure to a liquidator is a criminal offence.
See Part 3, paragraphs 2.107 to 2.108.
What happens if the petition is dismissed?
The company must be returned to the control of the directors and an account provided in relation to its assets. This is why it is so important to preserve records, assets and everything the official receiver touches in the condition in which it was found, as far as possible. The official receiver should always bear in mind that the petition may fail and he/she may have to give everything back!
See Part 5 – Winding-up petition hearings and termination of appointment.
[Back to Part 5 – Winding-up petition hearings]