The rights of privilege in bankruptcy cases (Re Lemos; Leeds and another v Lemos and others)

The rights of privilege in bankruptcy cases (Re Lemos; Leeds and another v Lemos and others)

Paul Marsh, partner at Hillyer McKeown LLP, outlines a recent insolvency case, explaining the conflict at its core—whether documents that might have been subject to legal privilege could be used by trustees in bankruptcy. While this case has proved illuminating, he believes the lesson for practitioners is that the Crescent Farm principle, which would have previously been relied upon in such a case, does not apply and practitioners must take care in the future.

Original news

Re Lemos; Leeds and another (in their capacity as the joint trustees in bankruptcy of the estate of Lemos) v Lemos and others [2017] EWHC 1825 (Ch), [2017] All ER (D) 157 (Jul)

The Chancery Division dismissed, for the most part, an application by the trustees in the bankruptcy (trustees) of the first respondent for directions concerning the use of documents held by solicitors who had acted for the first respondent in other proceeding, and for an order, pursuant to section 366(1) of the Insolvency Act 1986 (IA 1986), requiring them to deliver up any further documents in their possession relating to his affairs.

What was the background to the decision?

The first respondent in the case had been made bankrupt in 2015, but was discharged in 2017.

The applicant trustees sought directions as to whether documents that had been obtained from the former solicitors of the first respondent could be used by the trustees. They obtained those documents in the discharge of their functions and the documents may have been subject to legal professional privilege. The trustees sought directions as to whether those documents could therefore be used as evidence in proceedings under IA 1986, s 423, relating to alleged transactions to defraud creditors, which were brought by the sister of the first respondent as a major creditor in his bankruptcy. The documents were likely to have been very useful in the recovery of valuable assets for the benefit of creditors. The trustees had written to

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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.