Limits on Liquidators: English Court Clamps Down on Broad Third-Party Document Requests
The BVI and English insolvency legislation make provision for liquidators to require third parties to disclose and deliver up information and documents relating to the insolvent company. Although liquidators in both jurisdictions are appointed as agents of the insolvent company, in a recent decision, the English courts made it clear that the applicable statutory provisions do not permit liquidators to make unlimited requests for information and documents.
In the case of Webb v Eversholt Rail Ltd [2024] EWHC 2217 (Ch), the joint liquidator of a company (“Company A”) applied for an order under sections 235 and 236 of the Insolvency Act 1986, requiring a sister company (“Company B”) and a law firm (“the Law Firm”) to provide documents relating to Company A. Company A was part of a group of companies, of which Company B was also a part. Company B held all of Company A’s books and records. The Law Firm acted for Company B.
The liquidator sought “copies of all documents…in its possession, custody, or control relating to the business, dealings, affairs, or property of” Company A from Company B and the Law Firm. The liquidator also sought a summary of all legal advice that the Law Firm had given. The liquidator argued that he required the information and documents to enable him “to reconstitute the company’s records” and “for the purpose of their investigations.”
The English Court refused the application.
The Court held that it would only compel third parties to disclose information and deliver up documents that were reasonably required, and that it would need to see compelling evidence to understand why a liquidator needed to reconstitute and see all of a company’s records. While the Court would give considerable weight to the liquidator’s assertion of what was reasonably required, it found the liquidator’s request to be too broad. It noted that the liquidator’s evidence focused more on asserting the existence of undisclosed documents than on justifying the scope of the request.
The Court said that the blanket request did not assist it in balancing the liquidator’s need for information and documents against the inconvenience and potential oppression caused to Company B in complying with the liquidator’s request. This was particularly the case since the liquidator had not provided any evidence suggesting that Company B would withhold, conceal, or destroy Company A’s documents, and Company B had been cooperative, only refusing to comply with overly broad and inadequately explained requests.
Regarding the Law Firm, the Court found, as with the application against Company B, that the liquidator’s evidence focused on an alleged entitlement to information and documents rather than a reasonable need for them. In relation to a further argument over whether Company A or Company B was the true beneficiary of legal advice provided by the Law Firm, with the liquidator submitting that there was joint interest privilege, the Court held that any merits in this argument was outweighed by the breadth of the order sought against the Law Firm, which was unsupported by sufficient evidence to justify the liquidator’s reasonable need to access all the requested documents.
