Succinct outline of ProvLiqs purposes

Federal Court judge Michael O’Bryan issued a judgment this week that outlines with admirable succinctness the fundamental purpose of appointing provisional liquidators (ProvLiqs), the circumstances required to justify such appointments and the reasons why any such appointment cannot by ordered in the absence of limitations.

His honour was confronted with the far from unusual scenario in which shareholders had fallen out.

In Hema Maps Pty Ltd v HemaX Digital Pty Ltd, in the matter of HemaX Digital Pty Ltd [2024] FCA 1127 the judge observed: “HXD is essentially caught in the middle of two feuding shareholders, each of which has (either directly or through a related entity) a day-to-day commercial relationship with HXD and on which HXD relies.”

Unable to overcome their differences one of those shareholders – Hema Maps Pty Ltd trading as Emprise Group Holdings (Hema Maps) – last month applied for the winding up of joint venture entity HemaX Digital Pty Ltd (HXD).

Consenting to act as liquidators in the event the court agreed to wind up HXD were Rodgers Reidy pair Neil McLean and Brodie Hilet.

But rival shareholder the Derry Trust was having none of it. It wanted the parties to go to mediation and cited numerous grounds of opposition to an order that HXD be wound up.

That prompted Hema Maps to seek the appointment of McLean and Hilet as ProvLiqs, and in approving that application Justice O’Bryan summed up what a ProvLiq’s role and purpose as well outlining what circumstances must apply.

“The appointment of a provisional liquidator pending the determination of an application for winding up has been described as a “drastic intrusion into the affairs of the company and is not to be contemplated if other measures would be adequate to preserve the status quo”, the judge said, quoting reasoning in Zempilas v J N Taylor Holdings Limited (No 2) (1990) 55 SASR 103.

“The cautionary statement directs attention to the consequences of the appointment of a provisional liquidator,” he said.

“The appointment constitutes a significant intrusion into the affairs of the company because it has the effect of displacing the directors and the provisional liquidator assumes control of the company.”

The judge described the role of the ProvLiq as one of preserving the status quo until a winding up application is determined, and compared the ProvLiq’s function to that of a court-appointed receiver whose appointment can be terminated by the court at any time.

“Before appointing a provisional liquidator pursuant to s 472(2), the Court will need to be satisfied of two matters,” he continued.

“The first is that a winding up application has been filed and there is a reasonable or sufficient prospect that a winding up order will be made on the application.

“The second factor is whether there is urgency and sufficient reason for intervention prior to the final hearing including whether the appointment is needed in the public interest, or to protect the company’s assets or to preserve the status quo in relation to the affairs of the company.”

Based on what was put before him by the applicants, and in view of the Derry Trust abandoning its earlier opposition to the appointment of ProvLiqs, his honour found that the conditions necessary for the appointment of ProvLiqs were present.

He did however add that the ProvLiqs’ powers would be limited in respect of S 477(2) (c), (g) and (m).