Which documents can liquidators reasonably request? (Re Corporate Jet Realisations; Green v Chubb)

Which documents can liquidators reasonably request? (Re Corporate Jet Realisations; Green v Chubb)

James Morgan and Matthew Weaver, barristers at St Philips Chambers, advise that the judgment in Green v Chubb and Jervis is a helpful reminder that different tests are applied depending on whether the documents or information being sought can be said to form part of the company's property or whether it belongs to third parties.

Original news

Re Corporate Jet Realisations Limited (In Liquidation); Green v Chubb and another [2015] EWHC 221 (Ch)

The company's liquidator applied to the court under sections 234-236 of the Insolvency Act 1986 (IA 1986) seeking delivery up of the company's records from administrative receivers who had been previously appointed over the company, together with information and documentation from the receivers and their firm concerning pre and post appointment work undertaken by them which included communications passing between them and the appointing bank. The court held that documents said to form part of the company's property were to be disclosed. With regard to the other documents sought, an assessment had to be carried out, balancing factors such as confidentially, with the duty of a liquidator to carry out his duties, including obtaining information and documentation where a reasonable requirement for the same is established. Having carried out that balancing act some—but not all—categories of documents sought were to be disclosed.

Briefly, what was the background to the case?

The company in question was a holding company with six trading subsidiaries all of which carried on the business of private jet charter hire. The company was incorporated in August 2001 and wound up on a creditor's petition on 25 November 2009, with the liquidator being appointed on 1 March 2010.

Prior to the winding up, administrative receivers (the receivers) had been appointed by the company's single largest creditor, Bank of Scotland plc (the bank), on 26 September 2007 pursuant to a debenture.

Prior to the appointment of the receivers, PwC had been engaged by the bank to investigate the company's financial position and, then, to advise the bank on proposals for a management buy-out (MBO) of the company's business and sale of its assets.

The company's business and assets were sold to a company incorporated by the existing management of the company on the same day as the receivers were appointed. The MBO did not include five private jets owned by the company which were sold separately.

The MBO and sales of the private jets realised around £17m, of which £14.5m was returned to the bank under its security and £2.5m paid in fees and expenses of the receivership. The receivers ceased to act on 5 March 2013, at which point the bank had a shortfall under its security of around £98.5m with no further assets to realise.

The liquidator wrote to the receivers very shortly after his appointment seeking the company's records and thereafter sought further information and documentation from the receivers. He was not satisfied with the information and documentation provided by the receivers and so issued an application pursuant to IA 1986, ss 234-236 in June 2013. In September 2013, the receivers delivered up 11 lever-arch files of documentation to the liquidator but the application was pursued by the liquidator who was not satisfied with the extent of the receivers' delivery up and provision of information.

The liquidator sought delivery up of all documents of the company together with all documents created as a result of the receiver's appointment and time in office. Further, the liquidator sought all documents relating to the work undertaken by PwC prior to the receivership, namely the investigation into the company's financial situation and the advising on the proposed MBO and asset sales.

The liquidator had concerns over the MBO and the sale of assets, in particular the values obtained for the same given that the majority of the sales were to connected parties. In addition, the liquidator wanted information on the cash coming in and out of the company at relevant times, particularly a large payment to an Isle of Man bank.

What were the legal issues that the registrar had to decide?

The registrar had to determine, in respect of each category of documents sought, whether the liquidator had established a reasonable requirement for each category of documents sought, that the delivery up of the same would not impose an unreasonable burden on the receivers and that the liquidator was not using the sections of IA 1986 abusively, namely to obtain evidence or admissions for use in legal proceedings against the receivers.

In particular, the registrar had to determine whether, to the extent that any of the documents sought were confidential as between the receivers and the bank, whether that confidentiality should be overridden and the documents delivered up.

What were the main legal arguments put forward?

The liquidator argued that, in respect of the documents which could be said to be the company's property, it would need exceptional circumstances to deny him an order for delivery up. However, as regards documents which do not belong to the company, the liquidator argued that these documents were necessary in order to allow him to carry out his statutory duties and investigate the company's activities, and those of the receivers, prior to liquidation.

The receivers accepted that the company's documents should be delivered up but argued that in respect of documents which did not belong to the company, the liquidator had not provided sufficient evidence of a reasonable requirement for the same, adopting a scattergun approach to why he needed or wanted the documents; had not explained what he intended to do with the documents if he received them; the material sought, particularly in respect of emails, was voluminous and, as such, it was unreasonable and disproportionate to require the receivers to produce it; and some of the communications between the receivers and/or PwC and the bank were confidential and, therefore, ought not to be disclosed to the liquidator.

What did the registrar decide?

The registrar ordered the delivery up of the documents which could be said to form part of the company's property, including books and records. This was not a contentious issue save for identifying precisely what documents this included (some documents belonging to the bank or to the receivers) which was not determined at the hearing but was, instead, left to be determined, to the extent necessary, at a later date.

The remaining documents sought, namely those which were not part of the company's property, could be broken down into two categories. First, the emails between the receivers and the bank and, second, what was described as 'details of work undertaken by PwC prior to the appointment of the receivers' which included an investigation into the company's financial affairs, valuations of the company's assets and advice on the appropriate strategy for the bank to adopt to recover its indebtedness and the PwC's working papers.

While the onus was on the liquidator to establish a reasonable requirement for these documents, significant weight was given to the liquidator's professional opinion on whether the documents were reasonably required. While the liquidator's view on why these documents were needed altered to some extent in his various witness statements, this was due to the changing nature of the information he had at any one time. As he was a stranger to the company's affairs, this was not to be criticised or held against him. The liquidator did not have to explain what he intended to do with the documents, merely to show that he had a reasonably requirement for them which he had demonstrated.

The registrar ordered that the emails be disclosed to the liquidator. The fact that they were numerous and stored on many different computers and servers was not reason for them not to be disclosed. Documents issued on behalf of the company to third parties and received by the receivers from third parties were also ordered to be disclosed. However, in respect of communications between the receivers and the bank, to the extent that these were concerned with strategic considerations for the bank, the usual protection in such cases of confidentiality was not to be overridden as the liquidator, while referencing a possible claim for fraudulent trading involving the bank, had not adduced cogent evidence to undermine the usual position of maintaining confidentiality. As such, these documents were not disclosed to the liquidator. All other communications between the receivers and the bank that were not concerned with strategic, confidential issues were to be disclosed, including working papers.

A request by the liquidator for disclosure of valuations of the assets sold by the receivers was refused on the basis that the receivers, while not disclosing the valuations themselves, had informed the liquidator of:

  • the assets sold
  • the date of the sales
  • the sale prices, and
  • the sale agreements

The registrar considered that this information was sufficient to allow the liquidator to carry out his duties. In addition, the request for disclosure of documents regarding the payment to an Isle of Man bank was refused on the grounds that the receivers had confirmed that a proper explanation of this payment had already been provided by the receivers.

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

The judgment is a helpful reminder that different tests are applied depending on whether the documents or information being sought can be said to form part of the company's property or whether it belongs to third parties. Documents that form the company's property will almost inevitably have to be delivered up whereas for other documents, a balancing exercise will be conducted if a reasonable requirement for the same is established.

In addition, it confirmed that while a reasonable requirement to the documents must be shown by an office holder (the burden remaining on the office-holder), there is no requirement to explain what is to be done with those documents once they are delivered up.

Confidentiality will prevent disclosure of documents save for in exceptional circumstances and the possibility (but no more) of a claim for fraud will not be sufficient to override the confidentiality.

What practical lessons can insolvency office-holders and those advising them take away from the case?

Office-holders have a right to the company's books and records and save for exceptional circumstances, anyone holding the same will be ordered to deliver them. However, for documents which belong to a third party, the office-holder must consider precisely why he or she needs them (rather than simply wanting as much information as possible). When confidentiality issues might arise which could prevent disclosure, a cogent, well-argued and persuasive argument as to why the documents are needed might override these confidentiality issues. Without such an argument, confidentiality cannot be ignored by office holders as the courts will continue to enforce the rights of parties to confidential communications.

James Morgan is an established commercial practitioner, with a particular expertise in the fields of insolvency, company and commercial dispute resolution. James has a wealth of trial experience and of applications for interim relief, including freezing orders and injunctions. He also sits as a Recorder of the County Court.

Matthew Weaver has developed an impressive chancery/commercial practice with a particular specialisation in insolvency. He regularly appears in the specialist courts in both Birmingham and London. While Matthew's commercial practice is founded on significant insolvency and company law expertise, he also specialises in the areas of banking and finance law, commercial fraud and professional liability.

Interviewed by Kate Beaumont.

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 time-line 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.