Section 236: Unfocused fishing expeditions or just fact finding missions…

A Liquidator enters office as a relative stranger to the events of the insolvent company. It is axiomatic that he or she cannot put the jigsaw puzzle together without the pieces; those being the facts that a) led to the insolvency and b) could potentially give rise to returns to creditors.

Although it is not usually the Court’s role to police regulatory best practice, a Liquidator is required by virtue of Statement of Insolvency Practice Number 2 (“SIP 2”) to have in mind the need to ascertain, and if necessary investigate, what assets can be realised and consider as to whether prior transactions by an insolvent company, could give rise to an action for recovery.

Parties who may have something to fear of the Liquidator’s discovery of the facts, whether they are former officers or even former advisers, may look to raise allegations of unfocused so-called fishing expeditions. Such a characterisation might be made to seek to avoid making the disclosures sought by the Liquidator and dissuade the Liquidator from embarking upon an application for the appropriate production/examination order.

Liquidators who find themselves in this position may wish to consider the distinction between an application under Section 236 of the Insolvency Act 1986 and one for disclosure generally.

This was helpfully set out in Re Bank of Credit and Commerce International SA (in liq) (No 12),; Morris and others v Bank of America National Trust and Savings Association and others [1997] 1 BCLC 526 in which the following statement was made by the Court:

“…there is (as Mr Sheldon submitted and as I accept) a basic and important distinction between the procedures which the court may order under s 236, on the one hand, and discovery on the other hand. Discovery (like other procedures to which accusations of ‘fishing’ may be pertinent, such as interrogatories and writs of subpoena duces tecum) is naturally constrained by and limited to issues which have, by then, been raised and pleaded in adversarial proceedings. The same is not true of applications under s 236, whose whole object (as Sir George Jessel MR said in Re Gold Co (1879) 12 ChD 77 at 85) is to enable the office-holders to find out facts before they bring an action (and, it may be, to discover that an action would not succeed).”

The aforesaid is not legal advice and is not to be relied upon as such. No liability is accepted by the writer for any reliance placed on the same.

If you have a specific query then you should seek independent legal advice on the same.

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