The appointment of a provisional liquidator is not often pursued as the practical implications are draconian: directors lose the ability to control and manage the company's affairs. The provisional liquidator doesn't have the authority to distribute assets however, as that is the function of the ultimate liquidator (if appointed). Usually the provisional liquidator is appointed after a winding up application has been issued but before the Court hearing to wind up the company. The powers afforded to a provisional liquidator are usually limited to those set out within the court order of the appointment. The general purpose of the provisional liquidator is to ensure that the assets of the company are safeguarded from the risk of dissipation, which is a necessary precaution when there are allegations of fraud or misfeasance. A provisional liquidator can also be appointed in other circumstances, such as where an administration order would not be appropriate and the company needs some breathing space to effect a restructuring proposal.

In an ex tempore judgment of the Bailiff in the matter of IPIS UK (Battersea London I) Limited (Company) the Royal Court granted the appointment of a provisional liquidator. Two factors make this judgment important: first, it is understood that this is the first occasion that a provisional liquidator has been appointed by the Royal Court over a Guernsey Company and secondly, the Company was solvent at the time of the appointment and would be for the foreseeable future.

The minority shareholder had applied for the Company to be placed into compulsory liquidation on the basis that there had been a failure of the Company's sub stratum and/or alternatively that there was a constitutional and administrative vacuum as the Company had no directors or investment manager.  Accordingly the minority shareholder contended that it was just and equitable that the Company be wound up pursuant to section 406 (i) of the Companies (Guernsey) Law, 2008.

The purpose of the Company was to develop an English situs property. The property was purchased in February 2015 and a professional team were appointed, however construction on the property did not commence. The development was financed partly by shareholder capital and partly by a bridging loan. The bridging loan expired and a replacement was not obtained. A bridging lender appointed a fixed charge receiver and a sale of the property was agreed. Accordingly, the Company was due to receive substantial funds following the sale, but was in an unusual situation given the absence of a director or investment manager and therefore unable to operate a bank account. 

In usual circumstances the appointment of a director would have been the obvious solution, however the mechanism by which a new director could have been appointed would not have taken place before the date on which the Company was due to receive the funds described above.  As such there was a danger there would be nobody able to give good receipt for the funds that were due to be paid. 

The majority shareholder subsequently brought an application for the appointment of a provisional liquidator for the principal reason that given the development project had run its course and a sale was foreshadowed, it was necessary to ensure that the Company was able to give good receipt as substantial funds were anticipated.  The fixed charge receiver appointed over the property would take comfort in the knowledge that the provisional liquidator was acting under supervision of the Court and would not be distributing those funds without a further order. The order was consented to by both the majority and minority shareholders and, having satisfied himself that the Court had jurisdiction, the Bailiff made the order.

This decision adds helpful guidance to the Guernsey Insolvency regime as it demonstrates that the Royal Court adopts a pragmatic and flexible approach when exercising its discretion, particularly so where the parties face unusual circumstances.

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