Cross-border insolvency: High Court balances interests of liquidators and former management in determining applications for information

In a recent decision, the High Court considered requests made by foreign insolvency officeholders to obtain information and documents from former senior management of a foreign company, where the liquidation had been recognised in the UK under the UNCITRAL Model Law on Cross-Border Insolvency (the "Model Law"): Re Farfetch Limited (In liquidation) [2024] 3340 EWHC (Ch).

The court imposed a confidentiality regime to protect any information obtained from the respondents in writing that was to be shared with creditors. However, it refused to order the respondents to attend an oral examination, finding that it would be oppressive to do so when the respondents were suspected of wrongdoing and the JOLs had not yet exhausted alternative sources of information.

The decision provides a helpful illustration of the balancing exercise to be carried out by the court when faced with requests for assistance from insolvency practitioners, and demonstrates that the oral examination of former management suspected of wrongdoing may be seen as a last resort.

It also shows that the court may impose confidentiality restrictions before requiring information to be provided to insolvency officeholders, where there are legitimate concerns that those receiving the information may not otherwise acknowledge its confidentiality.

Background

In February 2024, the Cayman court ordered the winding up of Farfetch Limited ("Farfetch"), a company incorporated in the Cayman Islands which was the holding company of a global fashion enterprise, on the basis that it was unable to pay its debts. Joint official liquidators ("JOLs") were appointed by the Cayman Court, and the liquidation was subsequently recognised in the UK as a foreign main proceeding pursuant to the Model Law, on the application of the JOLs.

The JOLs then applied to the English Court for relief under Article 21 of the Model Law, which allows a court to grant any appropriate relief where necessary to protect the assets of the debtor or the interests of the creditors. Specifically, the JOLs sought orders requiring three former members of the senior management of Farfetch and the wider Farfetch group (the "Respondents") to attend an interview to be examined orally by the JOLs in relation to Farfetch's affairs, and to produce certain documents in their possession or control.

The JOLs said these orders were necessary in order to discharge their obligation to investigate the circumstances of Farfetch's insolvency, as they were concerned that Farfetch might have been seriously mismanaged (including by the Respondents) and the information requested (which they said was likely to be critical to their investigations) had not been provided voluntarily.

The JOLs' concerns were centred around a transaction which took place shortly before the company entered liquidation, by which substantially all of Farfetch's assets were sold to another company, with the result being that notes issued by Farfetch as well as other debts would not be paid.

Decision

The High Court (Thompsell J) granted the first two Respondents' request for certain confidentiality restrictions to enable them to provide written responses to the JOLs' requests in the first instances. It refused to order that they be subject to oral examination on the basis that such an order was premature. It adjourned the application against the third Respondent, who objected on jurisdictional grounds (and that aspect is not addressed further in this post).

Applicable principles

The court summarised the legal principles applicable to the JOLs' requests under Article 21 of the Model Law. It noted that Article 21 allows the court to grant any additional relief that may be available to a British insolvency holder, and so approached its decision by reference to the principles on which the court will exercise its powers under section 236 of the Insolvency Act 1986.

Referring to British & Commonwealth Holdings Plc [1992] Ch 342, the judge outlined the balancing exercise which needs to be carried out between the requirements of the officeholder to obtain information and the risk of oppression to the person against whom the order is sought, identifying the following relevant factors:

• The case for making an order will usually be stronger against an officer of the company than against a third party, because they owe a fiduciary duty to the company and are under a statutory duty to assist officeholders;
• An order for oral examination is more likely to be oppressive than an order for the production of documents;
• If the person risks exposing themselves to liability by giving the information sought, that involves an element of oppression; and
• It is oppressive to require a person to prove the case against themselves on oath before proceedings are brought, where they are suspected of wrongdoing, and in particular fraud.

Confidentiality restrictions

The Respondents offered to address the JOLs' questions in writing, saying they had already prepared written responses but did not want to share them with the JOLs without comfort that confidentiality restrictions were agreed or imposed by the court. They had particular concerns that their responses might be shared with Farfetch's creditors who formed part of the Liquidation Committee.

The JOLs opposed the imposition of any confidentiality restrictions by the court on the basis that such restrictions might constrain their Cayman law duties to disclose information to, and consult with, the Liquidation Committee. The JOLs also argued that such restrictions were unnecessary because the JOLs and the Liquidation Committee were already bound by Cayman law to treat the information received in a confidential manner and use it only for the purposes of the liquidation. The parties do not appear to have made any submissions based on the implied duty of confidence which in English law applies to information which a respondent is compelled to disclose under section 236.

The court sympathised with the Respondents' concerns, and ordered that the JOLs could not share the information obtained from the Respondents with members of the Liquidation Committee without first drawing their attention to relevant confidentiality obligations under Cayman law and receiving acknowledgment of that notice. In reaching this decision, the court concluded that such requirements would not prevent the due administration of the liquidation because there was "obvious sense" in withholding information from any members of the Liquidation Committee who deliberately failed to acknowledge its confidentiality. Further, the court considered that the JOLs would not be in breach of any duty not to fetter their powers since they would be complying with a confidentiality order imposed by the court, as a price for receiving the information requested.

Oral examination

Two of the Respondents argued that the JOLs' application for them to be made subject to oral examination should be refused on the basis that they had been employed by one of Farfetch's subsidiaries, not Farfetch, and so had never owed Farfetch duties as directors of that company. The court dismissed that argument, noting that one of these Respondents had held various positions in the Farfetch group's management so was likely to have a great deal of relevant information, and the other had been Farfetch's CFO and in that capacity regularly attended the company's board meetings.  

With the above findings in mind, the court carried out the balancing exercise in respect of the JOLs' request for oral examination of the Respondents.

It refused to grant the order sought, because: (i) the JOLs had not yet properly digested the documentary evidence they already had; (ii) the JOLs were now due to receive further information by way of written responses to their questions (following the decision on confidentiality referred to above); and (iii) the JOLs plainly suspected the Respondents of wrongdoing or mismanagement, so (given that the existing available sources of information had not yet been exploited) it would be unfair to put them to oral examination.

However, the court noted that if the written responses proved inadequate, even after a further round of clarification, there may come a time when the JOLs could demonstrate that oral examination would be appropriate.

Additional relief sought

The JOLs had also requested that the Respondents be required to provide any documents they held which might be relevant to the questions asked by the JOLs. One of the Respondents had provided sworn evidence that he did not hold any such documents, which the court accepted. Another had indicated that her mobile phone might contain some relevant information. The court ordered that the phone be imaged to "hold the ring", so that no information available to this Respondent was lost, but the information collected should not be interrogated until the JOLs had exhausted their other sources of information.