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Is There A Section 236 Investigation Hurdle?

What is the section 236 investigation hurdle? 

Oh, you’re in charge? Well, I got some bad news for you *Dwayne*, from up here it doesn’t look like you’re in charge of ….

John McClane was not attempting to highlight the problems of a Liquidator seeking to vault the Section 236 investigation hurdle when he berated Dwayne Robinson from the top of Nakatomi Plaza. The notion that a Liquidator embarking upon his or her investigations is in charge might potentially be floating an optimistic picture.

Who Is In Charge?

Section 236 of the Insolvency Act 1986 is often referred to as a power of a Liquidator. It exists because without it a Liquidator appears to have no leverage when seeking information from third parties to obtain information to investigate an insolvent company’s affairs. Without Section 236 of the Insolvency Act 1986 a Liquidator would be conceivably as powerless as the glass covered Dwayne Robinson. He or she would conceivably be a figurehead perhaps; seeking to obtain information from third parties with nothing more than charm to offer. 

However, even with Section 236 of the Insolvency Act 1986 the Liquidator arguably cannot be said to be in charge per se. He or she may have the power to apply to the Court for an Order to be put in charge of certain information but that arises from the enforcement of a statutory right.  Enforcement takes time and can be expensive. Time and expense can fetter a Liquidator’s investigations. Ultimately it appears the Court is in control.

It is not unheard of for a Liquidator to seek information from someone who may view the request as unwelcome. The person asked may consider it undesirable for such investigations to fully unscramble a company’s financial affairs and therefore resist disclosure notwithstanding the potentially serious adverse consequences.

This can be the case if the Liquidator is investigating the company’s Directors. They will have typically controlled the company and its records of transactions. 

Section 236 Court Application

Any application to Court requires the applicant to prove their case. In the instance of Section 236 of the Insolvency Act 1986 the Insolvency Practitioner must show a ‘reasonable requirement’ for the information sought to avoid Section 236 oppression. If you are going to demonstrate a reasonable requirement for something it is hard to do so if you cannot particularise with specificity what it is that you are after. If you are looking to investigate a company as part of your Liquidator duties to get in, identify, discover and recover the company in Liquidation’s property and assets then you may want to obtain all relevant financial information.

It might be tempting perhaps to seek all information and if it is refused to suggest a Section 236 application might sprout next. That can be a bit of a catch-22 because when you make the Section 236 application the order sought will have to specify what disclosure you seek. If you look to widen the ambit too far you could put the application’s prospect of success in some peril. If however, you narrow it down too much you can find yourself having to repeatedly go back to Court for further disclosure as often partial disclosure can raise more questions than it answers.

Using Section 234 Of The Insolvency Act 1986 Instead

However, this uncertain route towards obtaining required information can potentially be overcome by an alternative approach. In the case of Green v BDO Stoy Hayward LLP [2005] EWHC 2413 (Ch) an application was brought by Oliver Elliot’s CEO, Elliot Green under Section 236 of the Insolvency Act 1986 for the files of auditors. Both the application and the appeal were not successful. This was the case even though it appeared or was thought that some of the documents sought were either company records or copies of company records.

It might have been interesting to see what would have happened had part of the application been brought under Section 234 of the Insolvency Act 1986 instead. 

Very often it is the absence of information that makes it difficult for a Liquidator to satisfy the reasonable requirement test in Section 236. It is however possible to vault this Section 236 investigation hurdle by hoovering up all sources of company records that may not only be held by the Directors but also from third parties who may have acted as agents for a company, such as advisers. 

This may potentially afford a Liquidator useful snippets of historical documentary information capable of then being deployed to more fully flesh out the position and prove the need for the information sought in the Section 236 application. 

It might even be the case that Section 234 of the Insolvency Act 1986 can be deployed to obtain all of the information required but this will depend on the facts of the case.

Oliver Elliot Observation On The Section 236 Investigation Hurdle

It might be obvious to the Liquidator they need the information they seek and that a need to go through enforcement of such rights could be unhelpful because of the cost and delays that may transpire. Nevertheless, if a Section 236 applicant cannot properly articulate a case for the information they seek then such an application can fail.

It might be unwise to attempt to turn around to the Court and say you want X Y and Z and it is obvious why. The Court may not readily be willing to infer the need; it might typically want to be shown the need. 

You cannot predict in the case of a contested Section 236 application the arguments that will assume significance so it ought to be an application that is prepared very carefully.

There is no substitute in such matters for experience. It is helpful to have reviewed lots of files of professional advisers so that you can properly anticipate what information perhaps ought to be present. This can be helpful when guiding the legal team who put the arguments before the Court.

What Next?

Expert Advice Is Just A Click Away

If you have any questions in relation to How To Vault The Section 236 Investigation Hurdle – ‘Reasonable Requirement’ Tip then contact us as soon as possible for advice. Oliver Elliot offers a fresh approach to insolvency and the liquidation of a company by offering specialist advice and services across a wide range of insolvency procedures.

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Disclaimer: How To Vault The Section 236 Investigation Hurdle – ‘Reasonable Requirement’ Tip

This page is not legal advice and should not be relied upon as such. This article How To Vault The Section 236 Investigation Hurdle – ‘Reasonable Requirement’ Tip is provided for information purposes only. You can contact us on the specific facts of your case to obtain relevant advice via a Free Initial Consultation.

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