Rely on the most comprehensive, up-to-date legal content designed and curated by lawyers for lawyers
Work faster and smarter to improve your drafting productivity without increasing risk
Accelerate the creation and use of high quality and trusted legal documents and forms
Streamline how you manage your legal business with proven tools and processes
Manage risk and compliance in your organisation to reduce your risk profile
Stay up to date and informed with insights from our trusted experts, news and information sources
Access the best content in the industry, effortlessly — confident that your news is trustworthy and up to date.
Find up-to-date guidance on points of law and then easily pull up sources to support your advice with Lexis PSL
Check out our straightforward definitions of common legal terms.
Our trusted tax intelligence solutions, highly-regarded exam training and education materials help guide and tutor Tax professionals
Access our unrivalled global news content, business information and analytics solutions
Insurance, risk and compliance intelligence using big data, proprietary linking and advanced analytics.
A leading provider of software platforms for professional services firms
In-depth analysis, commentary and practical information to help you protect your business
LexisNexis Blogs shed light on topics affecting the legal profession and the issues you're facing
Legal professionals trust us to help navigate change. Find out how we help ensure they exceed expectations
Lex Chat is a LexisNexis current affairs podcast sharing insights on topics for the legal profession
Discuss the latest legal developments, ask questions, and share best practice with other LexisPSL subscribers
Restructuring & Insolvency analysis: What does the latest Comet Group case tell us about applications made by insolvency office-holders for information from third parties pursuant to the Insolvency Act 1986, s 236 (IA 1986)?
Re Comet Group Ltd (in liquidation); Khan and others v Whirlpool (UK) Ltd and another  EWHC 3477 (Ch),  All ER (D) 336 (Oct)
Mr John Baldwin QC, sitting as a Deputy Judge of the Chancery Division, was faced with the issue of whether the court had jurisdiction to make an order for production of information and documents sought by the liquidators of Comet Group Ltd (Comet) against Whirlpool (UK) Ltd (Whirlpool) and Embraco Europe srl (Embraco) pursuant to an application made under IA 1986, s 236. If it did, the second issue for the judge was whether the court should exercise its discretion in favour of the liquidators.
The judge held that the court did have jurisdiction (once the liquidators confirmed they were content with a slight variation to the order originally sought). Further, taking all relevant matters into account, and being careful not to impose an unreasonable burden on the respondents, the judge ordered that the respondents provide to the liquidators the documentation sought.
For office-holders, this case provides some guidance as to what the court can and cannot order under IA 1986, s 236, and calls for some precision when drafting the application as to what relief is sought, to ensure that it falls within the court’s jurisdiction.
This case also confirms that office-holders need to be as specific as possible as to the classes of documents sought, and that a fishing expedition will generally not be tolerated.
IA 1986, s 236 forms part of the armoury available to administrators, administrative receivers, liquidators, or provisional liquidators to assist in their investigations into the assets, affairs and dealings of the company in respect of which they have been appointed.
Where appropriate, the office-holder can apply to court under this section seeking an order that an officer of the company, or any relevant third party, be summoned to appear before it to be questioned or, alternatively, that they provide a witness statement setting out their dealings with the company. The court may also order that any books, papers or records in that person’s possession or control relating to the company or their dealings with it be delivered up to the office-holder.
Whirlpool was a supplier of white goods, including fridges and freezers to Comet. Embraco is a manufacturer and supplier of refrigeration compressors for use as components in fridges and freezers. Whirlpool and Embraco (together the respondents) form part of the same corporate group. Embraco supplied compressors to manufacturers of fridges and freezers within that group, who then in turn supplied them to Whirlpool.
In December 2011, the European Commission held that Embraco and its parent, Whirlpool SA had infringed art 101 of the Treaty on the Functioning of the European Union by participating in a cartel between April 2004 and October 2007, and were fined circa €54m.
Comet considered that it might have a damages claim against the respondents as a ‘victim’ of the cartel, where it was believed that inflated prices might have been paid.
The liquidators’ solicitors sent a letter before action to the respondents, quantifying the claim at just over £49m, and said that steps would be taken to issue proceedings in the event that no satisfactory response was received. That letter was met with a response to the effect that the claim was misconceived, and that Embraco could demonstrate that even direct customers of compressors were not harmed by the conduct of the cartel.
Further correspondence followed, including a request for disclosure from the respondents for sales data, input cost data and pricing methodology for the period from April 2004 to October 2007. Ultimately, the liquidators made their application to court pursuant to IA 1986, s 236 for production of this, asserting that it was needed in order to investigate whether (and, if so, to what extent) Comet suffered recoverable loss as a result of the cartel and to decide (for the benefit of Comet’s creditors) whether or not to commence formal proceedings for damages.
The respondents opposed the liquidators’ application firstly on the ground of jurisdiction, and secondly on the ground of discretion, with each ground made up of separate heads:
The respondents submitted that the court had no jurisdiction to order production of anything beyond material relating to the company itself, or its business, dealings, affairs or property, and that this therefore excluded any pricing information relating to third parties.
The judge held that this information may very well bear directly on the business and affairs of Comet, and that the court therefore had jurisdiction to order production of that specified information.
The respondents submitted that the jurisdiction to order production did not extend to anything other than books, papers and records, and therefore did not include ‘information’ as sought by the liquidators.
The judge considered that it was not appropriate to mix up requests for information and documents, and held that the court had no jurisdiction to order production of information other than pursuant to a summons to appear or via interrogatories or the submission of witness statements (ie in accordance with the Insolvency Rules 1986, SI 1986/1925, r 9.2—the liquidators had not sought this relief). The judge did however agree that the liquidators could amend their application so as to seek documentation containing the sales and other data, which would then bring the request within the court’s jurisdiction. The judge also made it clear that documents included documents in electronic form.
The respondents further submitted that the documentation sought should be framed by particular books, papers or other records in their possession or control.
The judge considered that this was a factor to be considered on the issue of discretion, not jurisdiction. If an applicant adequately describes documentation by reference to the subject matter it contains, that should be sufficient. In this case, the respondents knew what documentation they had—the liquidators did not.
The respondents submitted that the court has no jurisdiction to order production of documents which are not in the possession or control of the respondents.
The judge accepted that point, but that none of the documentation sought by the liquidators fell into that category.
The respondents submitted that the documents sought were not reasonably required for the purpose contended, and that it was clear from the letter before action that the liquidators had already decided to issue proceedings. The real purpose behind their application was to seek early disclosure of documents and gain an unfair advantage in litigation.
Having taken into consideration the correspondence between the parties, the asymmetry of information between the parties and the difficulties in proving causation in cartel damages claims, the judge held that the liquidators reasonably required the documents sought in order to properly carry out their functions and obligations.
The respondents submitted that production of the documents would be oppressive.
The judge accepted that the court had no jurisdiction to order the respondents to provide a summary of the information sought, which was an option the liquidators had offered to the respondents.
The respondents made the following further submissions:
Having taken everything into account in conducting a balancing act, and being careful not to impose an unreasonable burden on the respondents, the judge held that it was appropriate to make the order sought (subject to the permitted amendment mentioned above). In doing so, the judge concluded that the benefit likely to be gained by the liquidators as a result of making the order substantially outweighed the burden likely to be imposed on the respondents.
IA 1986, s 236 provides administrators, administrative receivers and liquidators with an important court-backed power of investigation into the assets, affairs and dealings of the company in respect of which they have been appointed. That extraordinary power must, however, be used reasonably, and the court will carry out a careful balancing exercise between the benefit to the office-holder, and the burden imposed on the respondent, as demonstrated in this case.
For office-holders, this case provides some guidance as to what the court can and cannot order, and calls for some precision when drafting the application as to what relief is sought, to ensure that it falls within the court’s jurisdiction.
This case also confirms that the office-holder needs to be as specific as possible as to the classes of documents sought, and that a fishing expedition will generally not be tolerated.
Further, although the court cannot order summaries of documents to be provided (as held in this case), the willingness of an office-holder to accept these, or to otherwise come up with options to minimise the burden on the respondent, would appear to be in the office-holder’s favour when it comes to the matter of discretion.
As a general rule, any indication that an office-holder has decided to issue substantive proceedings will cause them difficulties if they subsequently make an application pursuant to IA 1986, s 236. Care should therefore be taken in any pre-action communications.
For those advising respondents where production of documents is sought, it would appear to be important to properly consider what those documents are, whether those documents properly relate to the assets, affairs and dealings of the insolvent company (which is likely to be construed widely), whether those documents are in the possession or control of the respondent, and to discuss with the respondent what steps would need to be taken to produce those documents.
The office-holder should be asked to explain why the documents are required, and it is likely that the court would expect to see some evidence of engagement with the office-holder. In this case, the judge stated that the respondents had done nothing to help themselves in declining to respond positively to the liquidators’ requests.
*Randi blog update on 27 November 2014—it has been announced that the respondents will not be appealing this decision*
If you are a LexisPSL Subscriber, click the links below for further information:
Basic principles—the delivery-up of information and property to the insolvency office-holder
Not a subscriber? Find out more about how LexisPSL can help you and click here for a free trial of LexisPSL Restructuring and Insolvency.
First published on LexisPSL Restructuring and Insolvency
Stephen Leslie, solicitor in the Lexis®PSL Restructuring & Insolvency team
Free trials are only available to individuals based in the UK
* denotes a required field
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.
0330 161 1234