The circumstances of appointment of a provisional liquidator

In the matter of Colorado Products Pty Limited [2011] NSWSC 1225 demonstrates the circumstances in which a court will appoint a provisional liquidator. Briefly, this case concerned a bathroom accessories business, Colorado, whose three directors shared full ownership. At one time, all the assets of the company were sold to a third party. A stocktake found stock missing and unaccounted for (evidence pointed to removal by one director) and diversion of payment from Colorado's debtors to another company (by the same director). 

The court found that the grounds for an urgent appointment of a provisional liquidator were satisfied and that the balance of convenience favoured external administration because:

• There was a seriously arguable case for winding up, in that there was clear evidence of a rupture among the shareholders, that the company's substratum was gone and that the purpose for which the shareholders had come together (in this case, a bathroom acessories business) had come to an end.
• On the evidence there were clear grounds for an inference that Colorado's assets were in jeopardy.
• The company was not trading and so appointing a provisional liquidator would not jeopardise the company's trading reputation and there was no evidence of risk that external administration would trigger ancillary enforcement action.