Information Gathering For Liquidation Investigations

In order for a Liquidator in a Liquidation to conduct an information gathering exercise to obtain the books and records and also to obtain the Director’s cooperation via completion of a questionnaire to obtain data on the Company.

Similar principles apply to a Trustee in Bankruptcy’s Powers when dealing with personal Bankruptcy matters but the statutory references will vary.

Source of Information

There are usually a number of sources of the Company’s books, papers and records to enable me to more fully understand the Company’s affairs, dealings and property as follows:

  1. The Company’s officers such as its Directors.
  2. The Company’s accountants who may and often will have acted as its tax agents.
  3. The Company’s bankers who may and often will have acted as its agents in the processing of transactions.
  4. The Company’s solicitors who may have acted as agents.

Liquidator’s Powers to Obtain Information

The Liquidator’s entitlement to call for information arises from both legislation and case law.

Role As Agent

The Liquidator (and Administrators also in Administration) have the power to obtain property of the company when the custodian is an agent (see Gomba Holdings UK Ltd v Minories Finance Ltd [1988] 1 WLR 1231 @1235B – 1237C).

The right to inspect and take copies of documents, whether proprietary or simply as an incident of the agency relationship, extends to emails on the agent’s computer and the right to inspect the computer and take copies: Fairstar Heavy Transport NV v Adkins & Another [2013] EWCA Civ 886 @ paragraphs 46-56.

A Liquidator is under a duty to take control of a company’s property and property to which the company appears to be entitled: Section 144 of the Insolvency Act 1986. To that extent a Liquidator is under some duty to engage in records reconstruction in insolvency proceedings. Property is widely defined and includes books, records and documents.  Liquidators are under a duty to investigate the company’s affairs and the conduct of those who have previously held office such as Directors and are given wide powers to do so (Re Arrows limited [1995] 2 AC 75 @101C-101H.

Statutory Powers To Obtain Information

Section 234 Of The Insolvency Act 1986

Section 234 of the Insolvency Act 1986 provides:

(1) This section applies in the case of a company where—

(c) the company goes into liquidation, or

and “the office-holder” means the administrator, the administrative receiver, the liquidator or the provisional liquidator, as the case may be.

(2) Where any person has in his possession or control any property, books, papers or records to which the company appears to be entitled, the court may require that person forthwith (or within such period as the court may direct) to pay, deliver, convey, surrender or transfer the property, books, papers or records to the office-holder.

Section 235 Of The Insolvency Act 1986

Section 235 of the Insolvency Act 1986 provides:

(1) This section applies in the case of a company in respect of which a winding-up order has been made by the court in England and Wales, as if references to the office-holder included the official receiver, whether or not he is the liquidator.

(2) Each of the persons mentioned in the next subsection shall—

(a) give to the office-holder such information concerning the company and its promotion, formation, business, dealings, affairs or property as the office-holder may at any time after the effective date reasonably require, and

(b) attend on the office-holder at such times as the latter may reasonably require.

(3) The persons referred to above are—

(e) in the case of a company being wound up by the court, any person who has acted as administrator, administrative receiver or liquidator of the company.

Section 236 Of The Insolvency Act 1986

Section 236 of the Insolvency Act 1986 provides:

(1) This section applies in the case of a company in respect of which a winding-up order has been made by the court in England and Wales as if references to the office-holder included the official receiver, whether or not he is the liquidator.

(2) The court may, on the application of the office-holder, summon to appear before it—

(b) any person known or suspected to have in his possession any property of the company or supposed to be indebted to the company, or

(c) any person whom the court thinks capable of giving information concerning the promotion, formation, business, dealings, affairs or property of the company.

(3) The court may require any such person as is mentioned in subsection (2)(a) to (c) to submit [to the court] an account of his dealings with the company or to produce any books, papers or other records in his possession or under his control relating to the company or the matters mentioned in paragraph (c) of the subsection.

Case Law Rights To Obtain Information

Applications under Sections 235 and 236 of the Insolvency Act 1986 has been summarised by Buckley J as:

“The powers conferred by s.268 are powers directed to enabling the Court to help a liquidator to discover the truth of the circumstances connected 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, to put the affairs of the company in order and to carry out the liquidation in all its various aspects, including of course, the getting in of any assets of the company available in the liquidation.”

The purpose of the section is not limited to getting in and realising the company’s property. It extends to all aspects of the liquidation (or administration) including investigating the causes of the company’s failure and the conduct, whether related to that failure or not, of persons involved with the management of the company.  This is not limited to directors but includes all those involved with the management of a company’s affairs and includes receivers. To that extent a Liquidator is under some duty to engage in records reconstruction in insolvency proceedings.

Section 235 is mandatory in character and where Section 234 of the Insolvency Act 1986 is concerned it would only be in exceptional circumstances that the Court would deprive a company of its property or property to which it appeared to be entitled.

Section 236 of the Insolvency Act 1986 is an enforcement provision and the principles applied by the Court when exercising its discretion are outlined in British & Commonwealth Holdings plc (No.2) [1993] AC 426, @ 439C – 440A. The guiding principles are: the information sought must be necessary in the winding up and it should not be unfairly oppressive on the recipient of the request.

For the purposes of Section 236 of the Insolvency Act 1986, it is for the liquidator to establish why he or she requires the disclosure sought. However, there is a limit to the burden placed on liquidators in this regard.  Often, as in the instant case, the liquidator’s ability to specify precisely how the requested information will be used in the liquidation is hampered by the absence of the information in the first place.

To that end the liquidator is only required to establish a ‘reasonable requirement’ not that the information is essential or required for a particular task. The liquidator need not articulate in detail why he requires the disclosure sought.  The Court will attach a good deal of weight to the liquidator’s view [Sasea Finance Ltd v KPMG [1998] BCC 216].

Applications for the provision of documents, rather than for examinations, and against former officers, as opposed to third parties, are more readily permitted.

Liquidators are entitled to seek information in order to decide whether to litigate and against whom; such information gathering is not oppressive. Further, even if litigation has been commenced the liquidator can still apply for information and or  disclosure under Section 236 of the Insolvency Act 1986; litigation is not an automatic bar to the Court exercising its discretion.  It is however if the liquidator seeks information for the purposes of trying to gain an unfair advantage in litigation that the Court will decline to exercise its jurisdiction under Section 236 of the Insolvency Act 1986. To that extent a Liquidator is somewhat fettered from engaging in records reconstruction in insolvency proceedings.

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Disclaimer: Records Reconstruction In Insolvency Proceedings

This page: Records Reconstruction In Insolvency Proceedings is not legal advice and should not be relied upon as such. This article Records Reconstruction In Insolvency Proceedings 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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