Court clarifies extra-territorial effect of section 236—Official Receiver v Norriss

Court clarifies extra-territorial effect of section 236—Official Receiver v Norriss

Is Re MF Global still good law for the proposition that section 236 of the Insolvency Act 1986 (IA 1986) does not have extra-territorial effect? Marc Brown, a barrister at St Philips Chambers, considers the judgment in the recent case of Official Receiver v Norriss and what it means for practitioners.

Original news

Official Receiver v Norriss; subnom Re Omni Trustees Ltd [2015] EWHC 2697 (Ch), [2015] All ER (D) 69 (Nov)

The Chancery Division allowed the official receiver's (OR's) application, under IA 1986, s 236, for an order that the respondent, a Hong Kong resident, was to produce a witness statement, with supporting documents. IA 1986, s 236(3) had extra-territorial effect and, provided the considerations identified in previous authority were satisfied, the court had jurisdiction to require a person resident outside the jurisdiction to submit to the court an account of his dealings with a company, or to produce any books, papers or other records in his possession or under his control relating to the company.

Briefly, what was the background to the application?

This was the hearing of an application by the OR in his capacity as the liquidator of Omni Trustees Ltd (the company) for an order under IA 1986, s 236 that Mr Tristram Michael Norriss produce a witness statement detailing and exhibiting various matters concerning dealings with the company.

What were the legal issues that the judge had to decide in this application?

This case concerned the extra-territorial effect of IA 1986, s 236, particularly in light of the decision of the High Court (David Richards J, as he then was) in Re MF Global (UK) Ltd [2015] EWHC 2319 (Ch), [2015] All ER (D) 22 (Aug). The correctness of that decision was challenged in this case.

For further reading on Re MF Global, see blog post: Territoriality following MF Global.

Why did these issues arise?

The company is the trustee of an occupational pension scheme. At a time when the assets of the pension scheme held by the company were some £8.6m, around £3.7m was transferred from the company to a Small Self-Administered Scheme (SSAS) located in Hong Kong.

The transferee SSAS appeared to have acted by Mr Norriss, the respondent to this application, who appeared to be the principal if not the sole trustee of the SSAS.

By this application, the OR, acting as liquidator of the company, sought to find out what had happened to that sum of around £3.7m that had been transferred to the SSAS.

Mr Norriss, as a Hong Kong resident, disputed the court’s jurisdiction to make such an order.

What were the main legal arguments put forward?

Mr Norriss was not present nor represented on the application. However, he had previously written to the effect that he did not believe that the court of England and Wales had power to summon persons from abroad to appear before it under IA 1986, s 236—in essence arguing that the section did not have extra-territorial effect. He also asserted that what was being sought went beyond the scope of what was permissible under IA 1986, s 236.

The OR made clear that the examination of Mr Norriss was not being sought. Rather, what was being sought from him was an order for the production of a witness statement with supporting documentation and exhibits.

The OR argued that the decision in Re MF Global was wrong. While that decision had held that IA 1986, s 236 did not have extra-territorial effect, the decision had been made on the basis that the section was the successor to section 25 of the Bankruptcy Act 1914 (BA 1914) and that the court was therefore bound by the decision in Re Tucker [1988] 1 All ER 603 to the effect that that section did not have extra-territorial effect.

Counsel for the OR criticised the decision in Re MF Global and counsel for the applicant in that case for not having drawn the distinction between compelling a person to attend to be examined on oath and requiring a person abroad to produce documents and submit an account of dealings.

What did the judge decide, and why?

HHJ Hodge QC found that Mr Norriss was a person capable of giving information concerning the business, dealings affairs and property of the company and therefore fell within the scope of IA 1986, s 236.

The judge also found that, subject to the issue of the extra-territorial effect of the section, it would be appropriate for the court to exercise its powers under IA 1986, s 236 in relation to Mr Norriss in the manner sought by the OR.

As to the question of jurisdiction, the judge went carefully through the judgment of David Richards J in Re MF Global. He noted that the judgment (as any judgment) was only as good as the argument that had been presented to the court. The judge noted that the structure of IA 1986, s 236 was different to the former provisions off BA 1914, s 25, upon which Re Tucker had been decided—IA 1986, s 236 was structured such that it confers a freestanding power, independent of the power to summon a person to appear before the court for examination, to submit to the court an account of dealings and to produce books, papers and records.

The judge also relied upon the case of Re Mid East Trading Ltd [1998] 1 All ER 577, which did not appear to have been cited to David Richards J in Re MF Global, whereby the Court of Appeal had held that the making of an order under IA 1986, s 236 in respect of documents which are not in the jurisdiction does not involve an exercise in sovereignty, or at least was one which the legislature was to be taken to have intended the courts to make.

On that basis (and with considerable reluctance and hesitation), the judge declined to follow the decision in Re MF Global.

Rather, the judge held that IA 1986, s 236(3) does have extra-territorial effect and so the court has jurisdiction to require a person resident outside of the jurisdiction 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.

The judge therefore made the order sought by the OR on the application.

To what extent is the judgment helpful in clarifying the law in this area?

Following the decision in Re MF Global, it had been thought that the court was bound by previous authority to the effect that IA 1986, s 236 had no extra-territorial effect. However, that was a difficult decision, as David Richards J had said that had the matter been free from authority, there would have been a good deal to be said for concluding that the section did have extra-territorial effect, with the discretion of the court being used to keep it within reasonable bounds. The decision in this case appears to accord with the view that lent itself to David Richards J in that case.

The judgment appears to clarify that there is a difference in the operation of IA 1986, s 236 in that the power to require an examination on oath does not have extra-territorial effect—but the power to require the production of an account and documents does.

It may well be that the final resolution of this issue will require an appeal to the Court of Appeal.

What practical lessons can those advising take away from the case?

There are two aspects of this case that are worthy of note:

  • it appears to clarify the operation and scope of IA 1986, s 236—practitioners who, following the decision in Re MF Global, had ceased trying to obtain information from an appropriate person located outside of the jurisdiction, can now reopen those lines of investigation so long as they do not require the examination of that person under oath at court, and
  • it is an example of how a court might be persuaded to take a different view to a court of the same level

Marc Brown undertakes work across a broad spectrum of commercial work, but is a particular specialist in insolvency matters. He offers advice that is tailored towards the commercial outcomes sought by the client and is conscious of the business needs of clients, as well as the pure legal aspects of litigation. Marc is regularly instructed in relation to high value and complex cases, and has experience of dealing with cases involving lengthy and detailed factual backgrounds and complex issues of law.

Interviewed by Stephen Leslie.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

Further Reading

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Basic principles—the delivery-up of information and property to the insolvency office-holder

Checklist and timeline for evidence and property collection

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First published on LexisPSL Restructuring and Insolvency

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About the author:

Stephen qualified as a solicitor in 2005 and joined the Restructuring and Insolvency team at Lexis®PSL in September 2014 from Shoosmiths LLP, where he was a senior associate in the restructuring and insolvency team.

Primarily focused on contentious and advisory corporate and personal insolvency work, Stephen’s experience includes acting for office-holders on a wide range of issues, including appointments, investigations and the recovery and realisation of assets (including antecedent transaction claims), and for creditors in respect of the impact on them of the insolvency of debtors and counterparties.