[9] Generally, the purpose for which a provisional liquidator is appointed is to preserve the assets of the company and the status quo in relation to its affairs ( Zempilas v JN Taylor Holdings Ltd (No 2) (1990) 55 SASR 103; 3 ACSR 518 per King CJ). However, an order for the appointment of a provisional liquidator is different from some other kinds of interlocutory orders in that the order unavoidably disturbs the status quo to a degree, if at the time the application the company is carrying on business in a commercial environment. The very appointment of a provisional liquidator can have a drastic effect on the company's business, perhaps even leading to its commercial death (see the discussion by Kirby P in the Constantinidis case, at 635ff, and also Commonwealth v Hendon Industrial Park Pty Ltd (1995) 17 ACSR 358). This leads to the observation that "the appointment of a provisional liquidator pending adjudication upon the petition for winding up, is 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" ( Zempilas per King CJ, approved by Kirby P in Constantinidis at 635)."
19 Mr Allen of counsel for the applicant pointed out that to this should be added an observation of Young J in Riviana (Aust) Pty Ltd v Laospac Trading Pty Ltd (1986) 10 ACLR 865. His Honour said:
"As I understand the practice of this court over many years, if there is an application made in the presence of the company and suspicious circumstances are disclosed, which may not amount to putting the assets in jeopardy, and the plaintiff seeks a provisional liquidator and presumably is willing to fund the provisional liquidator to make investigation then ordinarily the court will appoint a provisional liquidator to make that investigation, though on an ex parte matter it may not have been so bold."
20 It is accepted by the respondents that there is a serious question to be tried on the principal claim for a winding up order in respect of each of Yatooma and Ros Civil. The inquiry must therefore be as to the balance of convenience and the question whether anything need be done to secure or stabilise the position pending trial of that principal claim.
21 It is relevant to note that Yatooma at least has some ongoing operations. It holds a builder's licence and, while the evidence leaves some doubt as to whether it exercises the licence for its own benefit or to enable Mr Frisoli to carry on a building business of his own, the fact remains that the licence is in existence and apparently in use. Ros Civil is said to have carried on a concreting business. It is not clear whether it continues to do so. The current litigation seems to play a large part in the activities of both companies as they now stand. They and their associates mount substantial claims against the defendants.
22 The course urged upon the court is one of intervention - intervention in a way which is often and justly described as "drastic". The form of intervention sought is one that is appropriate in cases of urgency. There is no urgency in this case, at least in relation to the allegedly forged share transfer of 2004, the deployment of Yatooma's funds in 2002 and the deployment of Ros Civil's funds in 2005 and 2006. The same is true of any application of company funds for Mr Frisoli's personal benefit.
23 Those wrongs, if indeed wrongs were committed, do not call for urgent intervention. Also, the applicant has been aware of them for years and is pursuing them in the ordinary way in proceedings which have been on foot for a long time.
24 The only thing which might conceivably be thought to call for urgent intervention is that which emerges from the evidence about the steps taken to comply with the undertaking given to the court on 5 September 2008. There are two issues there: first, whether the items delivered comprised everything required by the undertaking; and, second, whether the items delivered indicate some kind of suspicion, to use the term favoured by Young J, relevant to the discretion to appoint a provisional liquidator.
25 The first matter is, in my view, not one of direct relevance to the present inquiry. Failure to honour and carry out the undertaking to the court, if established, produces consequences of its own.
26 Of direct relevance here is the possibility that the well-being of the two companies is in jeopardy because of failure to keep proper books and records. Mr Allen referred to the statutory requirements in that respect. Section 286(1) of the Corporations Act requires a company to keep "written financial records that (a) correctly record and explain its transactions and financial position and performance, and (b) would enable true and fair financial statements to be prepared and audited". Section 286(2) says that these records must be kept for a period of seven years. There are, of course, separate requirement concerning the preparation of financial statements. Mr Allen pointed to the definition of "financial records" in s 9:
"'financial records' includes:
(a) invoices, receipts, orders for the payment of money, bills of exchange, cheques, promissory notes and vouchers; and
(b) documents of prime entry; and
(c) working papers and other documents needed to explain:
(i) the methods by which financial statements are made up; and
(ii) adjustments to be made in preparing financial statements."
27 It is clear from this definition that just what is required by way of "financial records" will vary from case to case and that for a company with an uncomplicated and straightforward set of activities the requirements may be quite modest.
28 The evidence from which inferences might possibly be drawn as to the adequacy of financial records is that concerning the steps taken to comply with the undertaking. It may be inferred that there are some gaps. There is a possibility (remote, perhaps, in the light of Mr Taylor's evidence) that some required tax returns or financial statements were not brought into being. This, it is said, warrants a finding of what Young J calls "suspicious circumstances". I cannot really come to any firm conclusion on this. Absence of some documents may be less serious than absence of others. But even if there are "suspicious circumstances" it does not follow that a provisional liquidator will or should be appointed. It is a question of what a provisional liquidator could or would usefully do to address matters in the particular circumstances.
29 I am not satisfied that an appointment would, on balance, serve a beneficial purpose. I am entitled to infer that an appointment would be prejudicial, particularly in the case of Yatooma, which holds a builder's licence. I do not see how an appointment would rectify an apparent gap in the records from the past. I am not persuaded that there is relevant jeopardy for the future that needs to be checked or addressed.
30 The concerns that lie behind the present application are those that lie at the centre of the substantive proceedings. At an interlocutory level there is no safeguarding, remedial or stabilising purpose that needs to be served by the appointment of a provisional liquidator.
31 Both parties say that they want an early final hearing. That is another reason why I am inclined to let matters remain as they are. I point out that under practice note SC Eq 4 a hearing of five days, as this would apparently be, cannot be accommodated in the ordinary way in the Corporations List. It may be that the parties will see fit to make an application to the Expedition Judge. That is a matter for them.
32 For the moment, all I need do is to order that prayer 1 in Mr Di Cianni's notice of motion filed on 8 August 2008 be dismissed and that Mr Di Cianni as applicant pay the respondents' costs of the hearing in relation to that application. I so order.
33 The balance of the notice of motion of 8 August 2008 is stood over to the registrar's list on 7 October 2008.
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