What Is A Liquidator’s Duty Of Transparency?
Duty To Creditors In A Liquidation
Liquidator’s duty of transparency to creditors is at the heart of insolvency procedures. Creditors have the right to know what the Liquidator is doing, how he or she is doing what they are doing and when they might see the benefits.
Insolvency Is For The Benefit Of Creditors
Creditors are what insolvency procedures are all about. Without creditors, insolvency as a process would not exist. Insolvency is therefore not for the benefit of Liquidators notwithstanding that they rank ahead of creditors in the statutory order of payment in insolvency proceedings.
Insolvency Is Largely Focused On The Creditors
Whilst insolvency is to assist Debtors and Directors, that is so that they can deal properly and lawfully with creditors.
Regulatory Objective Of Insolvency Practitioners
The Insolvency Act 1986 has regulatory objectives. Section 391C of the Insolvency Act 1986 refers to the following regulatory objective:
… promoting the maximisation of the value of returns to creditors and promptness in making those returns
The Liquidator enters office as a stranger to the insolvency; creditors do not. Without transparency afforded to creditors and engagement with them, a Liquidator may not learn the full facts about a company in Liquidation’s affairs.
Legal Duty Of Transparency To Creditors
Annual Progress Reports To Creditors
The primary Liquidator duty of transparency to creditors is the content required in the annual progress reports that a Liquidator must provide. Rule 18.3 of the Insolvency (England And Wales) Rules 2016 sets out details of the same, which includes:
(e) details of progress during the period of the report, including a summary account of receipts and payments during the period of the report
Regulatory Duty Of Transparency To Creditors
A Liquidator’s duties are many and varied but transparency for creditors is arguably at the summit of the same. However, where does the duty of transparency arise from?
Insolvency Code Of Ethics
The answer starts from the Insolvency Code Of Ethics and what it says in the transparency requirements of an Insolvency Practitioner:
… an Insolvency Practitioner in the role as office holder has a professional duty to report openly to those with an interest in the outcome of the insolvency. An Insolvency Practitioner should always report on his acts and dealings as fully as possible given the circumstances of the case, in a way that is transparent and understandable. An Insolvency Practitioner should bear in mind the expectations of others and what a reasonable and informed third party would consider appropriate.
Statement Of Insolvency Practice Number 2
Statement Of Insolvency Practice Number 2 refers to creditor reporting duties of a Liquidator as follows:
An office holder should report clearly on the steps taken in relation to investigations, and the outcomes …. Creditors should be given information regarding investigations, any action being taken, and whether funding is being provided by third parties; disclosure would be subject to considerations of privilege and confidentiality and whether investigations and litigation might be compromised.
Exceptions To The Duty Of Transparency
The duty of transparency is subject to some exceptions.
Legally Privileged Information
Documents subject to legal and professional privilege (“LPP”) outrank the Liquidator duty of transparency to creditors.
In most instances LPP is paramount and cannot be overridden even by the Court. LPP is deemed to be sacred.
Confidential Material
The Court can override confidentiality and order disclosure but it will be slow to do so as was noted for example only in the case of Green v Chubb and another [2015] EWHC 221 (Ch):
… confidentiality is not ordinarily overridden (but it may be)
Confidential material could be personal data disclosed but subject to the non-disclosure provisions in the Data Protection Act 2018. It can also arise by virtue of information that has been obtained under compulsion such as pursuant to an order of the Court under Section 236 of the Insolvency Act 1986. An example of the same might be the transcript of an interview of a Director of a company that has gone into Liquidation.
The Liquidator’s duty of transparency to creditors is a principle referred to in the Insolvency Code of Ethics. It therefore cannot be treated as some optional requirement.
It is however not an unqualified right that creditors have transparency. Certain matters will be confidential and not open for the Liquidator to disclose to creditors.
If the duty of transparency is considered to prejudice the future course of a Liquidation it appears that it will be for the Liquidator to properly put forward a reasoned position that conceivably goes beyond bare assertion to justify fettering the information afforded to creditors.
