Liquidator So-Called Fishing Expeditions And Investigations

Liquidator Investigations Overview

Liquidator so-called fishing expeditions and investigations arise because a liquidator enters his or her office as a stranger, having had no prior knowledge of the company’s affairs to which they are chosen by creditors to liquidate. Indeed a liquidator is prohibited by professional regulation(s) from having had prior engagement for the most part with such a company.

It is rare that a liquidator would ever have previously acted for such a company and in the vast majority of instances he or she will never have previously even heard of the same.

Consequently, a liquidator will need to conduct an investigation to discover the full extent of such a company’s affairs and the circumstances resulting in its demise; so that creditors can have the same relayed to them with the reasons for their losses. Best practice regulations (Statement of Insolvency Practice Number 2) require a liquidator to do just that in each and every case; to investigate the company’s affairs for creditors.

Yet the challenges that lie ahead for the liquidator are not to be underestimated even with statutory powers to aid their administration. Creditors may want to bear the same in mind.

Investigation Challenges For A Liquidator

So why is it that the challenges for the liquidator could arguably be considered to be so great? Well for all the apparent draconian powers available to the liquidator to compel people’s cooperation and to obtain information, he or she is nevertheless tamed by the control of the courts, who quite rightly and properly in my view place a duty upon any liquidator to be “reasonable” at all times.

There is a careful balancing act for the liquidator to maintain, between what is a reasonable request for information sought on the one hand and one which is deemed to be unduly prejudicial to the recipient of such a request on the other. This balancing act applies to all parties from whom the liquidator may seek information.

What is the relevance of this balance act? Well, it is perhaps not unknown sometimes for the liquidator’s task to be hampered by what maybe considered uncooperative former directors whose retention of company records might be considered less than satisfactory. An absence of company records certainly will do nothing to assist a liquidator’s investigations.

Agents From Whom Information Might Be Sourced

There are however fortunately other parties to whom a liquidator may and often could approach for information. Such parties may not always necessarily be entirely forthcoming in complying with the liquidator’s requests for assistance and information.

Ironic it might be considered, that such parties may have acted historically for the company and exchanged information freely with its former directors. Yet when such a relationship is at an end due to liquidation, sometimes obtaining information might be more challenging. Indeed when owed money such parties may even have entitlement in some instances to claim a lien over documents.

The Liquidator Fishing Expedition Suggestion

Such difficulties for a liquidator might take the form of a suggestion that the liquidator is conducting a fishing expedition for no real purpose.

A liquidator seeking to conduct an unbiased, independent and impartial review of a company’s affairs, dealings and property, can anticipate an information gathering exercise that consists of both confirmation of known facts and discovery of unknown facts.

A liquidator will not have the freedom to obtain information so as to place the company in a better position than it was already in prior to the liquidator entering office. However, notwithstanding the same, can there be any reasonable basis for the refusal for example of those who have acted for a company in its later years of life, from being required to produce to the liquidator all information and documentation in their possession that they hold that relates to the company?

Creditors may often have to accept that they will not recover their money. However, is it fair to creditors when a liquidator encounters resistance to the provision of information, thereby giving rise to the possibility that the liquidator’s ability to easily and speedily unravel the extent of the company’s affairs and reasons for its demise might be prejudiced?

Is a so-called fishing expedition, not part of such an investigatory process to which a liquidator is obliged to entertain? The so-called fishing expedition is perhaps another word for the action of undertaking investigations. A liquidator however must take care to act fairly and reasonably. When they act with an excess of zeal perhaps the fishing expedition expression might be deployed accordingly.

Liquidator Duty To Fish And Investigate

Consider the following persuasive authorities on the subject of the obligations of a Liquidator (or Administrator) to investigate:

…to do everything within his power to realise assets for the creditors, for instance by taking misfeasance proceedings, wrongful/fraudulent trading proceedings and investigating transactions which can be attacked as preferences, transactions at an undervalue and floating charges which may be avoided.

Bailey and Groves “Corporate Insolvency” (Third Edition)

A liquidator’s duty is to investigate the affairs of the Company…

Walker Morris v Khalastchi [2001] 1 B.C.L.C.)

. . . it is quite clear that the purposes of the administration must include the gathering of information as to the conduct of the affairs of the company and those responsible for it by an administrator in order that he can report to the Secretary of State as he is required to do. He must do so in order that the Secretary of State can perform his duty, which is the important one of taking proceedings if it appears that a disqualification order should be made.

Re Polly Peck International plc, Ex p the joint administrators [1994] BCC

Given there is a duty on these liquidators to get the money in, there was a duty to investigate what money could be got in.

A & J Fabrications Ltd v Grant Thornton [1998] 2 BCLC 227