Overview Of Green v BDO
Green v BDO Stoy Hayward LLP [2005] EWHC 2413 (Ch) (“Green v BDO”) was an appeal by the Insolvency Practitioner, Elliot Green, CEO of Oliver Elliot.
Our Mr Green had been appointed Liquidator of XL Communications Plc (“XL”).
The duties of a Liquidator required him or her to investigate the company’s affairs given a Liquidator enters office with no prior dealings with such a company. The Liquidator is therefore a stranger to the affairs of the company.
The Liquidator brought an application under Section 236 of the Insolvency Act 1986 against the auditors of XL, BDO Stoy Hayward LLP (“BDO”). At a hearing at Kingston Upon Thames County Court that application had been rejected by the District Judge. Our Mr Green then appealed to the High Court and the matter came before Mr Justice Kitchin as he then was.
Mr Green’s Request For The Files Of BDO
The Liquidator, our Mr Green, sought the files of BDO whilst acting as auditors of XL.
The request was declined by BDO saying it was not their policy to permit access to its working papers without a court order.
BDO also queried the period of time from when the files had been requested relative to the commencement of the Liquidation and queried why they were required.
The Liquidator said that he was seeking to review the financial affairs of XL. BDO said they had no documents that were the property of XL only their own papers.
Ultimately no files were volunteered and the application under Section 236 of the Insolvency Act 1986 was issued by the Liquidator.
After solicitors had been instructed a schedule of documents sought by our Mr Green was detailed. However, BDO was not satisfied that reasons had been provided for the information sought.
The District Judge’s Green v BDO Decision
The District Judge dealing with the Green v BDO decision in the first instance refused to make the order sought by the Liquidator saying our Mr Green had not satisfied the Court of a reasonable requirement for the information requested.
The Law Under Section 236 Of The Insolvency Act 1986
The law under Section 236 of the Insolvency Act 1986 relevantly exists to enable the Liquidator to discover the affairs of a company and to get in and realise the assets. That extends to enabling the Liquidator to reconstitute knowledge of the company that otherwise would have been in the minds of the former Directors as well as information that is reasonably required so the Liquidator can undertake his or her functions.
In an application under Section 236 of the Insolvency Act 1986, the Liquidator must show a reasonable requirement for the documents sought. As an Officer of the Court, the view of the Liquidator will be given considerable weight. A reasonable requirement does not require a Liquidator to show an absolute requirement for the information sought as the appellate court highlighted:
It is also recognised that the liquidator is required to establish only a “reasonable requirement” for information, not an absolute need and that he is under no duty to make out the requirement in detail.
The Green v BDO Appeal
The appellate Court rejected the appeal for the following reasons it provided:
- The Liquidator had not it said explained why the documents were required to further the purposes of the Liquidation.
- The District Judge had afforded the view of the Liquidator proper weight.
- Although certain of the documents sought were owned by the Company the application was not brought on the grounds of ownership.
In dismissing the appeal the judge said:
Overall, I have reached the conclusion that the District Judge did not err in principle or in the approach he adopted and that he exercised his discretion in a reasonable way in the rather unusual circumstances of the present case. He was entitled to come to the conclusion that he did. In all the circumstances this appeal must be dismissed.
