High Court refuses liquidator’s “wide and unsupported” application for delivery of documents

An application for documents to be delivered under sections 235 and 236 of the Insolvency Act 1986 ("IA 1986") was dismissed in August this year as the liquidator had failed to justify that the documents were reasonably required. This case serves as a reminder to insolvency practitioners that it is not sufficient to assert a general entitlement to obtain documents that relate to a company in an insolvency process, a court will only grant applications that are supported by evidence and justified in their scope.

To assist insolvency practitioners with their management of an insolvency process, the IA 1986 provides:

1. Under section 235(2) that specified persons (including officers and employees of the company) shall give to the office-holder such information concerning the company and its promotion, formation, business, dealings, affairs or property as the office-holder may at any time after the effective date reasonably require; and
2. Under section 236(3) that a court may require a specified person to submit an account of their dealings with the company or to produce any books, papers or other records in their possession or control relating to the company.

Webb v Eversholt Rail Ltd

Eversholt Rail (365) Limited (the "Company") was an SPV owned by Eversholt UK Rails Group (the "Group"). The Company held and maintained train engines and carriages to be leased to Group operators, as such it was entirely dependent on services provided by the Group's entities, particularly Eversholt Rail Limited ("ERL"), the first respondent. ERL was closely involved with the Company: they shared some board members and ERL stored all of the Company's documents and records.

The Liquidation

The Company entered a CVL in August 2019 appointing three office-holders from PWC as joint liquidators (the "Liquidators") Since little documentation was held by the Company, the Liquidators sought information from ERL and their lawyers, Norton Rose Fulbright ("NRF"), who were the second Respondent. ERL was compliant and cooperative: it delivered a USB stick to the Liquidators containing many of the Company's documents. The Liquidators subsequently wrote to request "full and complete details of any and all of the Company's property which is in your possession or under your control". ERL did not comply.

The Liquidators continued to make generalised requests for documents from ERL and NRF in correspondence. Both a WP and an open meeting also took place in February and June 2024. Despite this, the parties reached an impasse and the Liquidators brought an application under sections 235 and 236 of the IA 1986 (the "Application"). By the time of the hearing, the liquidation had been in progress for 5 years.

The Liquidators' Application

In the Application, the Liquidators sought from ERL and NRF "copies of all documents ... in its possession, custody or control relating to the business, dealings, affairs or property of" the Company in addition to any legal advice given to the Company by NRF. (NRF had maintained in correspondence that their client was always ERL and not the Company.) The Application stated that this was to enable the Liquidators to investigate and reconstitute the Company's records.

The court expressed sympathy for the challenge of the Liquidators given the unusual situation. Typically a liquidator would have access to a company's books and records (where properly maintained) to facilitate their investigations. However, it also considered that applying to court to compel a third party to deliver up all its documents relating to a company, was "extraordinary".

Decision

The Application was refused because its scope was so broad that it was "fundamentally misconceived". Judge Burton's words demonstrate her distain for the Liquidators' approach:

"Thus the Liquidators persistently fail to apprehend that when exercising its powers pursuant to sections 235 and 236 of the Act, the court will only compel a third party to disclose information and deliver up documents that are reasonably required."

Despite the Judge's sympathy that the Liquidators had little in the way of Company documents, that was not in itself sufficient to defend the breadth of the order sought. Judge Barton considered there was no justification as to why the Liquidators' requests could not have been more refined: since ERL had cooperated previously there was no reason to think that they would not comply.

The message to office-holders from this case is clear: any application for delivery of documents under the IA 1986 should clearly explain why such documents are "reasonably required" and should not be unduly broad or burdensome to carry out. An example of appropriate use of sections 235 and 236 can be seen in Green v Chubb (Re Corporate Jet Realisations Ltd (in Liquidation). In this case the liquidator applied for delivery of all documents and records within three specific categories and that related to the receivership.

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