Knowledge is Power – Information-gathering powers under the Insolvency Act 1986
When corporate entities enter an insolvency process, sections 234, 235, and 236 of the Insolvency Act 1986 (the “Act”) give the office holder powers to investigate a company and recover assets. These sections give them powers to track down company assets, gather information, and require persons within the company to cooperate.
Section 234 – Deliver up company property
Office holders by virtue of this section can seek a court order for company property it appears to be entitled to including books, papers and other records to be delivered up to them. The application is brought in the name of the office-holder and is typically used where such property is in the possession of third parties. It is important to note that:
- This section can only be used where the insolvent entity has a right to the property, not simply because property (such as documentation) may assist the office-holder in understanding the insolvent entity’s affairs.
- Where there is a dispute as to title, the Court will only make an order pursuant to s.234 if it considers it fair to determine title through a summary process. Where there is genuine dispute as to title, the correct process is a claim by the company.
In a situation of compulsory liquidation, section 160(1)(c) of the Act allows a liquidator to enforce s.234 without a court order. Accordingly, a formal application would only be necessary in the event of non-compliance.
As with the other information-gathering powers discussed in this article, while such an application can be made without notice this should only be done where there is a risk that putting the respondent on notice would cause injustice. In this case, the most likely position is that documentation would be destroyed if the respondent was put on notice.
Section 235 – Duty to Co-Operate
This section imposes a duty of co-operation with the office holder from people involved with the company, such as:
- Officers (both current and former) of the company;
- Any individual involved in the formation of the company in the year prior to the insolvency process;
- Employees of the company or anyone employed within the year prior who the office holder believes able to provide the required information;
- Officers and employees of another company that is an officer of the company or was within the year prior; and
- If the company is wound up by court order, any former administrator, receiver or liquidator of the company.
This cooperation helps practitioners build a full picture of the company’s financial situation, or in more serious circumstances can result in the Secretary of State requesting such information to decide if director disqualification proceedings should be commenced. Failure to comply with the duty to co-operate without reasonable cause could result in a fine and the court requiring the individual that an order is made against to pay the costs of the Applicant.
Section 236 – Powers of Investigation
Under this section, office holders have the power to inquire into the insolvent company’s dealings. Section 236 allows an office-holder to allow to the Court to summon to appear before it and examine:
- Any office holder of the insolvent company;
- Any person known or suspected to possess the company’s property;
- Any known or suspected debtor of the company; or
- Any person who may be able to give information about the company.
Such a summons then brings a ‘private examination’ where the office holder can ask the respondent questions. Such individuals can also be required to submit an account of their dealings with the insolvent company.
Unlike in respect of powers under s.234, s.236 can be used to obtain information which is not owned by the company.
The amount of case law in respect of when the Court will make an order pursuant to section 236 is significant, setting out how the Court has come to balance the contrasting rights of office holders, seeking recovery for the company’s creditors, with the oppressive nature of the remedy on respondents. Given these competing interests, the Court has also made it clear that applications (under any of the sections discussed in this article) must be specific in nature and that the powers conveyed to office holders do not constitute the right to embark on a fishing expedition.
How Ellis Jones Can Help
For both insolvency practitioners and stakeholders in businesses, understanding these parts of the law is important. If your company is facing or undergoing an insolvency process, knowing your rights and responsibilities is vital.
If you would like to discuss any of the points raised in this article, please do not hesitate to contact Tim McMahon (Tim.McMahon@ellisjones.co.uk) or Daniel Lewis (Daniel.Lewis@ellisjones.co.uk) or call 01202 525333.
About the authors
Daniel is an Associate Solicitor in our London office and has expertise in Banking & Finance Litigation, Insolvency, Cryptocurrency and Betting, Gambling & Gaming.
"The process could not have gone more smooth. Dan kept me updated, where necessary, throughout and every detail or query was explained clearly and with complete proficiency."
Tim is a Senior Associate Solicitor in our London office and has expertise in Banking & Finance Litigation, Commercial Disputes, Insolvency, Cryptocurrency and Betting, Gambling & Gaming.
"The team at Ellis Jones have a fantastic knowledge of their subject and a real empathy for their clients, I would always recommend them."
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