Glasgow v Ames Overview
The Insolvency representative won but let’s not get carried away, obtaining a Section 236 Insolvency Disclosure Order is no easier following Glasgow v Ames [2022] EWHC 2834 (Ch).
Let’s not forget the problems that can sprout with Section 236 applications such as those highlighted in the posts:
- How To Vault The Section 236 Investigation Hurdle – ‘Reasonable Requirement’ Tip
- Insolvency Act Powers – Reaching for the Section 236 pen; does the 234 one instead have more ink?
- Green v BDO Stoy Hayward LLP [2005] EWHC 2413 (Ch)
which were not in evidence here.
Harlequin Property (SVG) Limited Section 236 Application
This was an application under Section 234/236 of the Insolvency Act 1986 by an overseas Insolvency Representative (Mr Glasgow) recognised by the English Court who wanted to access documents to fulfil his duty as the insolvency representative of Harlequin Property (SVG) Limited (“HPSVG”) which was based Saint Vincent and the Grenadines.
Mr Ames, the Respondent operated around 40 companies for a property group. There were 64 million documents at large.
The background was a lugubrious tale of investor losses culminating in the following press release Harlequin resorts boss jailed for 12 years following SFO investigation. This was a unique case with a unique set of facts and unique circumstances. So Insolvency Practitioners those Section 236 skates need saving for the right day.
Six years down the track and Mr Glasgow still did not know that much about HPSVG. In view of the circumstances of the case the Court appeared willing to help Mr Glasgow.
In December 2016, Coulson J handed down a judgment in which HPSVG was one of the claimants and notably said:
… Mr Ames has ruthlessly exploited the idea of the limited company in order to set up over 40 different companies, some of which bear the Harlequin name, and some of which bear the Buccament Bay name. None of that was of any benefit to anyone except Mr and Mrs Ames. It is not appropriate for those who set up particular companies to perform particular functions for their own benefit to be heard to say, when it suits them, that somehow there has been damage to the overall brand for which a particular company, with no link to the defendant, can then claim damages.
What was in evidence here was as Mr Ames had operated a group of companies, documents were intermingled along with investor funds across the group and the contractual arrangements were considered a “mess“. The Applicant proposed a scheme to enable privilege to be safeguarded as far as practically possible.
The point this case highlighted was that it is not good enough for documents for a group of companies to become mixed up and then for a Liquidator to be frustrated from investigating.
Purpose Of Section 236 Of The Insolvency Act 1986
The Court considered the purpose of Section 236 of the Insolvency Act 1986:
Buckley J in Re Rolls Razor Ltd [1968] 3 All ER 698, approved by the Court of Appeal in Re Esal (Commodities) Ltd [1989] BCLC 59:
“The powers conferred by section 268 [which is the 236 equivalent] are powers directed to enabling the court to help a liquidator to discover the truth of the circumstances in connection with the affairs of the company, information of trading, dealings, and so forth, in order that the liquidator may be able, as effectively as possible, and, I think, with as little expense as possible, to complete his function as liquidator, put the affairs of the company in order and to carry out the liquidation in all its various aspects …”.
Reasons The Court Granted The Section 236 Order
It would seem very curious if Mid East Trading were to be read literally, with the result that where there was a lack of clarity in the evidence as to the precise ownership of documents, a liquidator of a company ought to be excluded from considering them even where there was solid evidence, and indeed evidence on the balance of probabilities, that they might be relevant to the liquidation. That is particularly so where, as here, it would be open to the respondent to identify which documents, or categories of document, were relevant. Here, given 64 million documents, that would have to be by indicative search words. But no positive search words have been put forward. Further, while Mr Ames expressed his concern that the order might impinge upon other companies’ documents, the example he gave was of the company, which I have already mentioned, in the Dominican Republic where there is necessarily, under the laws of that country, local ownership, or at least local directors. He was the man behind those companies whatever their ownership or direction.
It is also impossible in this case to say that each company within what I have called “the Group” is entitled to full and separate respect for its individual personality. Coulson J found that could not be the case and one can read that it is not the case from such contractual documentation as we have, which refers to the flow through of funds. Reflective of that, it was open to an investor, and there were some 1,900 individual investors, largely from this country, to switch their funds from a unit in one development to a unit in another. Thus, the intermingling of funds was always, and, indeed, on the contractual documentation, openly made part of this company’s mode of carrying out business. That itself may be said to raise the question of what its business was but, so far as one can discern from these documents, it was indeed the holder of these resorts and was, in certain cases, the contracting party for units in the resorts, whether that was as a matter of ownership correct or not. Funds were also received on its behalf and it was receiving funds through the inflow of money from the private investors. That money was substantial: some £140 million was invested. It is possible, as Mr Glasgow says, that the creditors in this company are some £190 million and their return may be a penny or two in the pound.
That is going to depend on realisations in the company, which is going to depend upon the intercompany accounts. That was another matter on which Mr Ames relied. He said, “Well, look, a lot of the other companies are owed a lot of money by this company.” That just indicates the importance to Mr Glasgow of sight of these documents in order to establish what the company’s position is. It is, of course, open to any of the other companies to make their own applications for disclosure of documents to assist them insofar as they do not already have them. Whatever, I am not satisfied that this order would be sufficiently disruptive of those other unidentified companies’ rights that any such rights ought to stand in the way of relief being granted on this application. It was for Mr Ames to identify the difficulties that there might have been with precision. He has had the opportunity to do that and he has not taken it.
…
Thus, I am satisfied that it is appropriate to make an order for disclosure of the electronic documents notwithstanding that they, or some proportion of them, may, as it turns out, not be related to the company’s business. The court has not been put into the position of being able to identify other categories which could be stripped out. Neither has the foreign representative. As I read the decision of Colman J in Yasuda Fire & Marine Insurance Co. of Europe Ltd v Orion Marine Insurance Underwriting Agency Ltd, albeit in a slightly different context, it is for the court to consider as well the practicalities of the order and how it may best be structured …
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