In a rare judgment[1], the court has dismissed an application made by joint liquidators for disclosure and delivery up of all information and documents in relation to an insolvent company.
Eversholt Rail (365) Limited ("365Co") and Eversholt Rail Ltd ("ERL") are both part of the Eversholt UK Rails Group, which owns and maintains railway engines and carriages that are leased to train operating companies. 365Co entered creditors' voluntary liquidation in 2019 and joint liquidators were appointed.
On request, ERL provided the joint liquidators with documentation. The joint liquidators made further requests, culminating in a request that ERL should deliver up everything it held "in relation to" 365Co. While generally cooperative, ERL resisted such a wide-ranging request, and the joint liquidators made an application against ERL and ERL's solicitors.
ICC Judge Burton refused the application, commenting that it was "fundamentally misconceived". But what factors will the court apply in such applications, and why did this one fail?
The legal principles: a whistle stop tour
The liquidators' application relied on sections 235 and 236 of the Insolvency Act 1986: provisions which confer wide-ranging powers on office-holders to obtain information about a company and its affairs.
Section 235[2]:
- applies to specified persons, broadly current and former officers and employees; and
- requires that they shall give the office-holder information concerning the company and its promotion, formation, business, dealings, affairs or property that the office-holder may reasonably require, and attend on the office-holder at such times as they may reasonably require.
Section 236:
- applies to a much broader category of person, namely any person whom the court thinks capable of giving information concerning the promotion, formation, business, dealings, affairs or property of the company; and
- provides that the court may require such persons to attend or submit to the court an account of their dealings with the company, or to produce any books, papers or other records in their possession or under their control.
The court has an unfettered discretion when deciding whether to make an order under section 236. In exercising this discretion, the court will carefully weigh up the reasonable requirement of the office-holder to obtain information for the purposes of investigation/the administration of the estate, against the possible burden to the person sought to be examined. While the views of office-holders will be given considerable weight in this balancing act, they are not decisive. Typically, it will be easier to make the case for an order under section 235 (i.e. against an officer or former officer of the company) than for an order under section 236 (i.e. against a third party).
The court has previously emphasised[3] that this is an "extraordinary power", and it is not without limitation: the office-holder must show that they have a reasonable requirement for the material sought.
Off-track: The liquidators' evidence
In this case, it was said that the documents requested were required to reconstitute 365Co's records, for the purposes of the joint liquidators' investigation. So, although the joint liquidators sought to explain why documents held by ERL existed, and why those documents constituted records of 365Co, they did not explain why they were reasonably required. This is of no assistance to the court, which must balance the liquidators' asserted need to see documents, against any inconvenience or oppression caused to the company in possession of the documents sought. ICC Judge Burton was unimpressed, concluding that as the evidence failed to explain why the documentation was reasonably required, there was no need to even consider any oppression on the part of ERL.
Just the ticket: ERL's response to the application
The court endorsed ERL's approach, noting that it was cooperative from the start, and only refused requests that were far-reaching and inadequately explained. Judge Burton said that, from a review of the requests made and the responses received, she was not persuaded that an application to court had been necessary. The joint liquidators' conduct was criticised: it was unfortunate that they did not proactively request a meeting with ERL, to discuss where relevant documents might be filed, possible search terms and relevant custodians.
Four years into the liquidation, ERL and its solicitors remained willing to provide documents in response to focused requests explaining why they were reasonably required. But the liquidators persisted in blanket requests for everything "relating to" 365Co's business. The court was critical of this phrase, noting that the words "relating to" suggest that the liquidators' requirements extended beyond documents required to reconstitute what was within 365Co's own corporate knowledge.
Tunnel vision: entitlement rather than reasonable requirement
Part of the joint liquidators' application was for ERL's solicitors to disclose information regarding 365Co. Their arguments centred around legal privilege, and that 365Co and ERL had common or joint interest privilege. It would then follow that ERL could not refuse to provide privileged material to 365Co, nor to its liquidators.
On the evidence, the court did not consider that joint interest privilege arose, but dismissed the application anyway. Again, the court found that the application was too wide, and the joint liquidators had not explained a reasonable requirement to see all of the documents requested. As with the application against ERL, the evidence focused on the asserted entitlement to documents, rather than explaining the liquidators' reasonable requirement to them.
The end of the line: why are documents reasonably required
This case clearly demonstrates that, in making such applications, office-holders must explain why they need certain documents, and why they are reasonably required. Even if it is to investigate a potential claim, it is surely preferable to be clear about that in evidence, so that the court may conduct the balancing exercise and make a determination accordingly. In this case, the joint liquidators' application did not even proceed to that stage.
The court's evaluation of the parties' conduct preceding the application is also useful. Office-holders should consider whether an early meeting is appropriate, and give thought to relevant parameters and search terms, potentially in a similar manner to disclosure in civil litigation. A request for everything may be difficult to justify.
Lastly, one of the most interesting comments made by Judge Burton was in relation to the realities of an appointment: that liquidators "must work within the confines of the circumstances of the company to which they have been appointed". Office-holders everywhere would like to receive a complete and well organised file, containing all documents relating to the company. That is rarely the reality, and as this case shows, the courts may not compel third parties to fill the gaps.
[1] Webb & Anor v Eversholt Rail Ltd & Anor (Re Eversholt Rail (365) Ltd - Insolvency Act 1986) [2024] EWHC 2217 (Ch)
[2] Section 235 applies when a company is in administration, administrative receivership, liquidation or provisional liquidation, and an application under section 236 can be made by an administrator, an administrator receiver, a liquidator or a provisional liquidator.
[3] British & Commonwealth Holdings plc (Joint Administrators) v Spicer & Oppenheim [1993] A.C. 426
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