Search and seizure under section 365 of the Insolvency Act 1986—guidance on full and frank disclosure (Lasytsya v Koumettou)

Search and seizure under section 365 of the Insolvency Act 1986—guidance on full and frank disclosure (Lasytsya v Koumettou)

Insolvency and Companies Court Judge Jones has given guidance on the procedure for making applications and the content of orders under section 365 of the Insolvency Act 1986 (IA 1986), including on the requirement to give full and frank disclosure on applications made without notice. Although almost every aspect of the application for—and execution of—the orders came under criticism from the judge, the judge nevertheless held that the orders should stand, with variations. Written by Samuel Parsons, barrister, at Guildhall Chambers.

Lasytsya v Koumettou and another (trustees in bankruptcy of the estate of Lasytsya) [2020] EWHC 660 (Ch)

What are the practical implications of this case?

The judgment of ICCJ Jones is useful for the guidance it provides on the conduct of applications for search and seizure orders, including during the hearing, the terms of an appropriate order, and how the search should be carried out.

For a search and seizure order to be made there must be:

  • a real risk that the property may otherwise be dissipated, destroyed or otherwise disposed of 

  • proportionality between the value of the property and the remedy, and

  • a balance between the rights of third parties affected and the need to recover the property


At the hearing, there is a duty on the advocate of full and frank disclosure and to draw the court’s attention to weaknesses in the potential case. An incorrect conclusion and an absence of serious thought can be criticised but, as the Court of Appeal observed in The Kapetan Markos [1985] Lexis Citation 1571, it will not amount to a material misrepresentation or non-disclosure.

The order itself should contain a penal notice and a number of safeguards (see para [30]) including:

  • that it be limited to the assets of the bankruptcy
  • identification of the relevant person (usually a partner in a solicitor’s firm) who has conduct of the litigation
  • terms identifying what should happen in relation to disputes over anything delivered by the Tipstaff to the solicitors
  • a requirement that the assets be appropriately listed and recorded, and
  • a provision as to the handling of electronic devices and records


The order should be served with a note of the hearing. Consideration should be given for the inclusion of a return date so that the same issues can be considered inter partes.

What was the background?

Ms Lasytsya’s trustees in bankruptcy made an application for a search and seizure order through their solicitors and counsel, as well as a second, related application for assistance. The trustees had concerns that, in essence, Ms Lasytsya had failed to declare the full extent of the assets that comprised her bankruptcy estate.

There were several problems and identifiable failures in the way the trustees dealt with obtaining and executing the orders.

The skeleton argument provided to the court did not deal with any potential weaknesses or unexplained matters. The note of the hearing was brief and unsatisfactory, but it appears nothing was said at the hearing that might have addressed the omissions in the skeleton argument. The court granted the applications and made two wide-ranging orders that permitted the search and seizure.

The trustees failed to apply for a warrant. The first order was not limited to property belonging to the bankrupt (and therefore went beyond the ambit of IA 1986, s 365). It did not contain any of the safeguards identified by ICCJ Jones. In particular, it failed to make express reference to the right of Ms Lasytsya to apply to set aside or vary the order.

Ms Lasytsya applied (in person) for a wide range of relief, including that the orders be set aside, for the return of items with a value of under £200, and copies of various documents.

What did the court decide?

ICCJ Jones was critical of the approach adopted by the trustees and their representatives. In particular, he criticised the skeleton argument, the note of the hearing, the conclusions reached in the witness statement in support of the application, the omission of safeguards from the orders, and the execution of the search and seizure itself.

The judge relied extensively on the distinction between (i) the duty of full and frank disclosure which, if not adhered to, will constitute a breach of duty, and (ii) incorrect submissions or arguments, which are neither material misrepresentations nor non-disclosure. The judge found (at para [93]) that that the trustees’ conduct fell on the right side of the line, but summarised his criticisms in the way the case had been presented at paras [95]–[96].

Although those criticisms supported setting aside the orders, the judge decided (at para [97]) that the remedy was inappropriate because:

  • even if the case had been presented properly, it would have still given rise to a basis for an order under IA 1986, s 365 
  • assets and documents seized which form part of the bankruptcy estate and/or should be delivered up to the trustees under a bankrupt’s statutory duty should be retained in accordance with the statutory rights of the trustees to keep them, and
  • the orders had been executed

The solution arrived at by the judge (at para [105]) was to vary the orders to apply to what had already been seized, without discharging the original orders.

It appears that there may have been negative costs consequences for the trustees (at paras [104] and [121(i)]). However, the effects of that decision would appear to be minimal, given Ms Lasytsya appeared in person.

Case details

  • Court: High Court of Justice, Business and Property Courts, Insolvency and Companies List
  • Judge: Insolvency and Companies Court Judge Jones
  • Date of judgment: 19 March 2020


Samuel Parsons is a barrister at Guildhall Chambers. If you have any questions about membership of LexisPSL’s Case Analysis Expert Panels, please contact caseanalysis@lexisnexis.co.uk.

 

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About the author:

Zahra started working as a paralegal at LexisNexis in the Lexis®PSL Banking & Finance and Restructuring & Insolvency teams in April 2019 and moved to the Corporate team in June 2020, where she currently works as a Market Tracker Analyst. Zahra graduated with 2.1 honours in BA French and Spanish and completed the GDL at BPP University. She has undertaken voluntary work for law firms in London, Argentina and Colombia.