Insolvency interviews in the context of suspected criminal or regulatory misconduct
Third parties are often caught (innocently or not) in the cross hairs of office holders seeking information and/or documents on the asset and liability position of a company in order to fulfil their functions properly and their duties to the creditors.
Under section 234-237 of the Insolvency Act 1986 (the “Act”) the office holder (defined as the liquidator, administrator, administrative receiver or provisional liquidator) has wide ranging investigatory powers to call in an insolvent company’s property, make inquiries of relevant persons and investigate the company’s affairs including summonsing any person (including an officer of the company) who has, or is suspected to have, property or relevant information in their possession before the court for a private examination. This is similar, but distinct from, the powers under section 133 of the Act to apply for a public examination of officers in liquidations.
Section 236(2) contains a very wide power for an office holder to investigate an insolvent company’s affairs by applying to court for an order summoning the following to appear before the court (i.e. for private examination):
In addition, under section 236(3) the court can order any such person as is mentioned in subsection 236(2)(a)-(c) to submit an account of his dealings with the company or to produce any books, papers or other records in his possession or under his control relating to the company. Failure to comply with a s236 order empowers the court to issue a warrant for that person’s arrest and seizure of any books, papers, records etc. in his possession. Failure to comply with a section 236 order is very serious and can constitute a contempt of court which could result in a custodial sentence. Often the mere threat of use of these powers by an office holder can result in voluntary disclosure of information and/or property. However, this can create its own set of issues.
Section 237 deals with the court’s enforcement powers under section 236. It includes powers to make an order compelling any person in possession of company property to deliver it up (in whole or in part) to the office holder; order any person indebted to the company to pay that debt to the office holder (in whole or in part) at such time and in such manner as the court may direct; order any person who if within the jurisdiction would be liable to be summoned under section 236, to be examined in any part of the UK or outside the UK.
Whilst the effects of section 236 on individuals residing within the UK are relatively clear, there has been an on-going debate on whether section 236 powers can be used to compel individuals residing abroad to either be summoned to the UK for private examination and/or to compel them to given an account of their dealings with the insolvent company and yield up any book/documents/records in their possession.
There have been a number of inconsistent first instance decisions on this issue over the last few years. Two decisions in 2015 reached opposite conclusions:
In July 2015 David Richards J (as he then was) held in Re MF Global UK Ltd  EWHC 2319 (Ch) that section 236 did not have extra territorial effect in relation to an application under section 236(3) for the production of documents by a French company. Notably Council Regulation (EC) 1346/2000 on insolvency proceedings (the “Insolvency Regulation 2000”) did not apply as MF Global was a financial institution and therefore excluded from its scope. Whilst a detailed examination of the Insolvency Regulation 2000 is outside the scope of this note, simply put, it applies to certain insolvencies commencing before 26 June 2017 in one member state and has the effect that the insolvency laws of the member state in which the main insolvency proceedings are taking place will take effect and be recognised in another member state to establish jurisdiction.
Only a few months later, in September 2015, HHJ David Hodge QC held in Re Omni Trustees Ltd (in liquidation)  EWHC 2697 that section 236 did have extra territorial effect. The court in Re Omni Trustees drew a distinction between the powers in section 236(2) (the power to summon a person for examination) and section 236(3) (the power to order production of documents). The latter was far less intrusive and held to be a freestanding power. Accordingly the court held that section 236(3) had extra-territorial effect to compel an individual outside the jurisdiction to give an account of his dealings and/or produce documents.
The issue arose again some years later in 2019 before Adam Johnson QC in the case of Phillip Wallace (as liquidator of Carna Meats (UK) Limited) v George Wallace  EWHC 2503 (Ch) sub nom Re Carna Meats. This was an application under section 236(3) for the delivery up of books/papers/records held by the company’s ex-bookkeeper who was based in the Republic of Ireland. Notably, the Insolvency Regulation 2000 applied in this case so that jurisdiction of the courts of England and Wales could be established. The court also approved and adopted the analysis in Re Omni Trustees that the structure of the constituent parts of section 236 could be distinguished and that there was a freestanding power under section 236(3) to compel production of books and records which was distinct from the more invasive coercive power to summon a person for private examination.
In the recent decision of Re Akkurate Ltd (in liquidation)  EWHC 1433 (Ch), Sir Geoffrey Vos appears to have put the debate on whether section 236 has extra-territorial effect to rest deciding, in line with Re MF Global, that is does not have extra-territorial effect.
Re Akkurate also concerned an application under section 236(3) to require two Italian companies to produce books and papers as well as an account of their dealings with the insolvent company. The application was not concerned with compelling attendance for private examination. Again the Insolvency Regulation 2000 applied as Re Akkurate had been wound up in May 2015. The question before the court was whether section 236(3) gave the court jurisdiction over the Italian companies or, alternatively, if jurisdiction could be established under the Insolvency Regulation 2000.
Sir Geoffrey Vos conducted a detailed review and analysis of all the relevant previous cases on this issue and concluded that the court was bound by the doctrine of precedent to follow the Court of Appeal decision in Re Tucker (a bankrupt)  Ch 148. Re Tucker concerned an application under section 25 of the Bankruptcy Act 1914 (“1914 Act”) requiring the bankrupt’s brother, resident in France, to be summoned to the UK for examination. The Court of Appeal found that the UK court had no jurisdiction under section 25 to compel the brother’s attendance. Jurisdiction could only be established if the brother accepted service or was present in the jurisdiction when served with the application. Importantly, it was common ground that Section 25 of the 1914 Act was the precursor to section 236 of the Act. That being the case, applying the doctrine of precedent, Re Tucker was binding authority on the High Court and Sir Geoffrey Vos was bound to conclude that section 236 had no extra-territorial effect. In doing so, the court disapproved the decisions in Re Omni Trustees and Re Carna Meats insofar as they held that there was a distinction to be drawn between sections 236(2) and 236(3) finding that there was no freestanding power under section 236(3) which had extra-territorial jurisdiction.
However, the court in Re Akkurate went on to consider the position where the Insolvency Regulation 2000 applied. The court held that the combined effect of Insolvency Regulation 2000 and section 236 was to grant extra-territorial effect where the respondent is resident in another member state. As such the Italian companies could be compelled to give an account of their dealings and produce books and records.
The debate over the extra-territorial effect of section 236 appears to have been put to rest by Re Akkurate at least at first instance. Given the ramifications for this decision it is perhaps inevitable that the issue will be raised in the Court of Appeal or Supreme Court. For now, there is a clear decision that there is no extra territorial reach unless the Insolvency Regulation 2000 (or for insolvencies post-dating 26 June 2017, its successor Regulation (EU) 2015/848 known as the “Recast Insolvency Regulation”) applies. Non EU persons (persons being both individuals and companies) still remain at risk if they accept service of proceedings (whether expressly or by taking a positive step) or if they are validly served with proceedings whilst in the UK.
Those in the EU will be compelled by the UK court to comply with section 236(3) although it is doubtful the more invasive powers under section 236(2) to summon them for private examination can be enforced.
However, these all rely on European legislation and, with Brexit looming, as things stand, the Insolvency Regulation 2000 and Recast Insolvency Regulation will cease to have effect from 1 January 2021 unless domestic legislation clearly stating they are to be incorporated into UK law. From next year the position could change once more so that there is no longer any distinction between non-EU and EU persons and section 236 will have no extra-territorial effect at all.
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