The purpose of appointing a provisional liquidator is the protection of the company’s assets from risk

A breakdown in trust and communication between a company’s directors, coupled with their inability to make decisions in furtherance of the company’s objectives, may result in a management deadlock.

Such a situation may justify the filing of a winding-up petition. Pursuant to Section 227 of Cap.113, the court has the discretionary power to appoint a provisional liquidator at any time following the filing of a winding-up petition and before the issuance of a winding-up order. This appointment may be made either ex officio or upon application by any interested party, including creditors or shareholders of the company.

The primary objective of such an appointment is to safeguard the company’s assets against imminent risks such as destruction, misappropriation, disposal, removal or mismanagement. It is a preventative and protective measure, particularly in circumstances where there is credible concern that the company’s assets may be at risk due to the actions of directors or third parties.

Criteria for appointment

In exercising its discretion to appoint a provisional liquidator, the court must be satisfied that certain substantive criteria are met. These include:

  • The existence of a serious and imminent risk of disposal or loss of corporate assets;
  • A reasonable probability that a winding-up order will ultimately be granted; and
  • The absence of any alternative and less onerous remedy to ensure the protection of the company and its assets.

These criteria are well-established in case law and ensure that such an appointment is reserved for truly exceptional circumstances.

Applications for the appointment of a provisional liquidator may be submitted by creditors, members of the board of directors, shareholders or the official receiver.

Given the urgency often associated with such matters, the court typically hears the application on a summary basis. Orders issued are non-returnable and remain in force until the final hearing of the winding-up petition.

The company and its directors may raise objections, especially when they contend that there is no immediate threat to the company’s assets or that the procedure is being misused.

The appointment of a provisional liquidator is an extraordinary remedy, aimed at preserving order and transparency throughout the liquidation process. While the court has the discretion to act swiftly, this is counterbalanced by strict procedural and substantive safeguards to ensure the remedy is not abused.

A provisional liquidator may be an insolvency practitioner or another suitably qualified individual, such as an accountant or lawyer.

Their powers are defined by the court order, which may limit their scope as appropriate. The term of the appointment is also determined by the order, generally lasting until the final adjudication of the winding-up petition.

While directors do not automatically lose their powers, the court may suspend their actions as part of the appointment order. Importantly, a provisional liquidator cannot sell company assets or make payments to creditors without prior approval from the court.

Judicial consideration

The District Court of Larnaca has recently dealt with the matter of provisional liquidator appointments in several decisions, including in Company Petition No. 27/2025.

In that case, the court found that the circumstances justified the issuance of an order appointing a provisional liquidator, and defined the scope of the appointee’s powers and remuneration.

The judge emphasised that when an application is filed without the consent of the company under liquidation, it must, as a general rule, be served on the company.

However, the court also acknowledged the possibility of issuing such orders unilaterally (ex parte) where urgent circumstances warrant it. It clarified that the element of “urgency” in this context is not solely dependent on time constraints, as in the case of interim injunctions.

Instead, it is more closely linked to whether there are exceptional circumstances demonstrating that, due to the way in which the company and its assets are currently being managed, there is an immediate and pressing need to preserve the status quo until the winding-up petition is determined. This is to prevent any involved or affected parties from obtaining an undue advantage over the company’s assets.

The court further held that the proposed appointee was a suitable and qualified individual, free from any conflict of interest with the company or the persons involved therein.