Keep it secret - can insolvency make you tell all?

Can legal privilege and professional secrecy in another jurisdiction prevent a liquidator from obtaining company property and documentation under sections 234 and 236 of the Insolvency Act 1986? What about where that disclosure could lead to criminal and regulatory sanctions? These issues were addressed in Hellas Telecommunications (Luxembourg) [2013] Lexis Citation 71 , where Mr Registrar Jones decided that Luxembourg professional privilege and secrecy laws could not prevent the company's liquidator from obtaining documentation relating to and belonging to the company.

What happened in the case?

The liquidators of Hellas Telecommunications (Luxembourg) II SCA (In Liquidation) (the company), a company incorporated in the Grand Duchy of Luxembourg, made an application for an order for production by the respondents (a law firm based in Luxembourg, members of that firm and a client of the firm) of (in summary) documents 'belonging to' the company or 'relating to' its promotion, formation, business, dealings, affairs of property. The liquidators also identified certain categories of documentation required but (mostly owing to the lack of information or documentation available to them) did not limit the application to just the documents listed. The liquidators also requested witness statements from the respondents to set out the details of key personnel who had carried out work on behalf of the company.

The respondents opposed the liquidator's application for the delivery up of any information concerning or relating to the company. Primarily, this was because the disclosure of any information and documentation concerning the company would breach Luxembourg law of professional secrecy and rules of professional conduct. The respondents also asserted that such disclosure would (at least) lead to the imposition of criminal as well as to adverse regulatory and/or private law consequences. The fifth respondent's position was that an order should not be made because all of the material is privileged whether under English law or the law of Luxembourg.

What were the issues for the court to consider?

Like any application made under IA 1986, ss 234–236, the court had to address the usual issues of whether the documents belong to the company, or in fact relate to it, and whether the information sought was reasonable and not oppressive. However, the main issue was one of jurisdiction and the application of Luxembourg laws on privilege and professional secrecy. The court considered:•

  1. which law applied
  2. to the extent English law applied, the impact of Luxembourg law when the court exercises its discretion under IA 1986, s 236
  3. the effect of the legal position in Luxembourg

What arguments did the parties make?

The liquidator’s position

The liquidator's position was that the issue of jurisdiction is a matter for the Regulation on Insolvency Proceedings (EC) 1346/2000 (the EC Reg)—therefore the issue of privilege is one to be determined as a matter of English law. That is because:

  1. as a matter of substantive jurisdiction, the law of England and Wales applies to all liquidations taking place in this jurisdiction
  2. an order to provide documents is a procedural requirement and all matters of procedure are governed by the domestic law of the country hearing the dispute
  3. under the EC Reg, the law of the member state that opens the insolvency proceedings is the law to be applied

The respondent’s position

The respondent's position, was that the information and documentation required by the liquidator was governed by Luxembourg law, and the court should not exercise its discretionary powers under IA 1986, s 236 to order the inspection of documents which are subject to another's privilege and where the disclosure would breach Luxembourg laws of professional secrecy.

What did the court say?

The court decided that the applicable law would be English law and that Luxembourg law is relevant only at the stage when the court considers the exercise of its discretion under IA 986, s 236. The court's approach was simple on the issue of applicable law. Once insolvency proceedings have been commenced, the law to be applied to those proceedings is the law of the member state in which they have been opened (EC Reg, art 4). In this case 'main insolvency proceedings' (EC Reg, art 3) were opened in England and Wales and therefore its law applies not only to the opening but also to the conduct and closure, particularly where there are no secondary proceedings.

The court had no doubt that Luxembourg law of professional secrecy applied to the respondents, but English law should be applied to the liquidator's application to determine which documents (if any) are privileged and should not be the subject of an order under IA 1986, s 236.

The court did however accept that Luxembourg law is relevant to the exercise of the court's discretion in particular because that is the law under which the legal advice and assistance was sought and potentially there are serious professional and criminal consequences for breach. However, the court decided that any order made by the English court could be recognised by the Luxembourg courts under the EC Reg, art 25, so that the Luxembourg court could decide that the English court's order violated public policy under the EC Reg, art 26 and steps could be taken in Luxembourg by the respondents to prevent any criminal or regulatory breaches.

What should lawyers be mindful of?

This case serves as a useful reminder for two key points. First, the approach the court will take when exercising its discretion to order the delivery up of documentation and information belonging to or relating to the company, and secondly how the EC Reg can work in practice in pan-European insolvencies, both on the applicable law and the recognition and enforcement of court orders.

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