The recent case of Official Receiver v Deuss & Ulrich serves as a stark reminder of the section 236 basics.
Section 236 Insolvency Act 1986 is an important tool in an office holder’s armoury. It gives the office holder (usually a liquidator or administrator) the power to require a person or entity to provide documents or to attend an examination in court where they will be questioned. The office holder generally has this power where using it would assist in:
- reconstituting the company’s records,
- putting the affairs of the company in order,
- completing contracts,
- investigating causes of insolvency,
- discovering facts about potential claims,
- identifying and recovering assets.
It is therefore a far-reaching power in terms of both who it can be invoked against and the reasons for this.
In Official Receiver v Deuss & Ulrich, the Official Receiver applied for an examination of an alleged de facto director of a company in liquidation. This was done at the request of Mr Hunt, liquidator of both the company and one of its creditors.
Rather bizarrely, the application was made despite the fact that Mr Hunt had issued a claim against Mr Deuss: a classic red flag that an application may fail, following Re Atlantic Computers plc. The claim against Mr Deuss was for damages in respect of alleged participation in missing trader fraud. The section 236 application sought an examination so that Mr Hunt could ask questions about the company’s banking, trading accounts, premises, employee pension rights, and formation and dissolution.
The court refused the application for three reasons:
- The Official Receiver had not established any useful purpose of an examination.
- There was a real risk that Mr Hunt’s position in the litigation would be unfairly improved.
- An examination would be oppressive.
Looking at the first reason in more detail, the application failed to:
- explain why the information sought was relevant to the liquidation,
- properly evidence Mr Deuss’ involvement in the company and knowledge of the information sought,
- explain why the various papers sought were relevant to the liquidation,
- evidence that the papers sought were likely to be in the possession of Mr Deuss,
- explain why, even if the papers were relevant, an examination was necessary,
- explain what questions would be asked at any examination (as this was impossible to know without sight of the papers).
In addition, Mr Deuss had offered to provide what information he did have by way of affidavit, which the court thought would be sufficient, at least in the first instance. As such, the application failed.
In conclusion, this case does serve as a reminder of the need as office holder to ‘get your ducks in a row’ before launching into a section 236 application. Not only will the court expect the usual pre-action request to have been made, but your application must be specific to the facts of the case and must justify each individual request with supporting detail as to how the liquidation would be assisted by reference to the bullet point purposes set out at the beginning of this article.
If you are an office holder requiring assistance in the investigation of an insolvent company, or if you are a respondent to a section 236 application, please do not hesitate to contact Alexandra Withers on email@example.com.