High Court dismisses liquidators' wide-ranging application for documents held by group company and its lawyers "in relation to" company in liquidation

In a rare case, the High Court has dismissed an application by liquidators pursuant to sections 235 and 236 of the Insolvency Act 1986, which give office-holders broad powers to obtain information and documents concerning the company and its affairs: Webb v Eversholt Rail Limited [2024] EWHC 2217 (Ch).

The High Court emphasised that office-holders must show that they have a reasonable requirement for the documents to enable them to carry out their duties. If a reasonable requirement is shown, the court will balance that against any inconvenience or oppression asserted by the respondent. It is not sufficient for an office-holder merely to assert that they are entitled to documents under the Act without providing evidence of a reasonable requirement for those documents.

In this case, the court was not persuaded that the application to court was necessary, as the respondents had cooperated with focussed requests for documents, and only resisted when the liquidators insisted that they should deliver up absolutely everything they held "in relation to" the company in liquidation. The court found that this was not the appropriate approach.

As the decision shows, while the Act provides office-holders with broad powers to obtain documents and information in order to investigate the company's affairs, the court will not grant an application that is unreasonably broad and unsubstantiated by evidence as to why the documents are reasonably required.

Background

In August 2019, Eversholt Rail (365) Ltd ("365Co") entered into creditors' voluntary liquidation and the applicants were appointed as joint liquidators. 365Co was part of the Eversholt UK Rails Group, which owns and maintains railway engines and carriages to lease to various train operating companies.

365Co was a special purpose vehicle with three directors, who were also directors of its sister company, Eversholt Rail Limited ("ERL"). 365Co had no employees and depended on services provided by ERL pursuant to a services agreement. All of 365Co's documents were held by ERL.

Following the liquidators' appointment, ERL provided various documents to the liquidators relating to 365Co, but the liquidators made various further wide-ranging requests both from ERL and from ERL's lawyers, Norton Rose Fulbright LLP ("NRF"). The latter was based, in part, on an invoice submitted by NRF to the liquidators for advice to 365Co, which the liquidators said made it clear that NRF provided advice not only to ERL but also to 365Co. NRF explained that this was an error, and that they had only acted for ERL and not 365Co, but the liquidators maintained the request.

The liquidators ultimately applied to the court for an order against ERL for "copies of all documents…in its possession custody or control relating to the business, dealings, affairs or property" of 365Co, including all documents created for the purposes of carrying out the services agreement and all correspondence entered into on behalf of 365Co or relating to its business. They also sought documents held by NRF including a summary of any advice given.

Decision

The High Court (ICC Judge Burton) dismissed the applications against both ERL and NRF. She concluded that the requests for documents against both respondents were far too wide and were unsupported by any evidence to explain the liquidators' reasonable requirement for the documents sought, so that the applications must fail.

The judge emphasised that office-holders must evidence a reasonable requirement for documents sought pursuant to sections 235 and 236. Per the leading case of British & Commonwealth Holdings plc (Joint Administrators) v Spicer & Oppenheim [1993] AC 426, although the court has a wide discretion to grant the requests of office-holders, this involves balancing the reasonable requirement of the office-holder to obtain information against the possible oppression to the respondents in providing it.  

The court will give considerable weight to a liquidator's assertion of what is reasonably required. However, in this case the liquidators' evidence was largely devoted not to explaining or justifying that requirement, but to explaining why it was "evident" that the respondents had further documents relating to 365Co's affairs and why the liquidators were "entitled" to receive the company's records.

The judge noted that, where a reasonable requirement is identified, then the question of the burden on the respondent in complying must be viewed in the light of that requirement. In this case, however, since the evidence failed to explain why any or all of the documents was reasonably required, there was no basis for the court even to start considering any alleged inconvenience or oppression. The applications therefore failed on that basis.

The judge described the applications as "fundamentally misconceived". The liquidators took the view that they should, by the application, be put in the same position they would have been in if 365Co had held its own records, rather than its records being held by ERL. As the Judge put it, however, that was not how the group of companies operated. The liquidators had to "work within the confines of the circumstances of the company to which they have been appointed".

The judge said that she was not persuaded that an application to court had been necessary in this case. ERL had responded cooperatively to all focussed requests for documents, and only resisted when the liquidators insisted that ERL should deliver up absolutely everything they held "in relation to" 365Co. The judge commented that, in light of ERL's "significant cooperation", it was unfortunate that the liquidators had not, at an early stage of their appointment, requested a meeting with ERL to discuss the services it performed for 365Co and where relevant documents might be filed, and indeed had not accepted ERL's offer of such a meeting.  

The judge also briefly addressed the question of privilege, in light of the liquidators' request for legal advice relating to 365Co. The respondents recognised that, insofar as advice was given for the benefit of 365Co, ERL could not assert privilege against the liquidators. However, NRF's evidence was that ERL was its client and not 365Co, and the liquidators had not suggested that that evidence should not be believed.

Instead, the liquidators had based their submissions on joint interest privilege between ERL and 365Co, which would mean that ERL could not assert privilege against 365Co, and therefore the liquidators. The judge noted, however, that ERL and 365Co were not in a relationship of parent company and subsidiary (where joint interest privilege had been recognised) but were "sister" companies, and there was no evidence that advice obtained by ERL had habitually been disseminated to 365Co. The fact that 365Co might have been the subject of advice to ERL did not, the judge said, appear sufficient to give rise to joint interest privilege.