|[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]|
England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Jackson & Anor v Baker Tilly & Anor  EWHC 1134 (Ch) (10 April 2014)
Cite as:  EWHC 1134 (Ch)
[New search] [Context] [View without highlighting] [Printable RTF version] [Help]
Royal Courts of Justice
B e f o r e :
IN THE MATTER OF ALOCASIA LIMITED (04582906)
A N D
IN THE MATTER OF THE INSOLVENCY ACT 1986
|(1) BRYAN JACKSON|
|(2) JAMES DOUGLAS ERNLE MONEY|
|(As joint liquidators of ALOCASIA LIMITED)||Applicants|
|- and -|
|(1) BAKER TILLY|
|(2) BAKER TILLY UK AUDIT LLP||Respondents|
(a trading name of Opus 2 International Limited)
Official Court Reporters and Audio Transcribers
One Quality Court, Chancery Lane, London WC2A 1HR
Tel: 020 7831 5627 Fax: 020 7831 7737
MR. S. DAVENPORT QC and MR. D. LEWIS (instructed by Moon Beever Solicitors) appeared on behalf of the Applicants.
MR. D. BAYFIELD (instructed by Mayer Brown International LLP) appeared on behalf of the Respondents.
Crown Copyright ©
II Application and Procedure
III The Facts
IV The Law
V The Decision
VI The Order
II APPLICATION AND PROCEDURE:
1. The Respondents do produce all books, papers, documentation and correspondence (including electronic) either in their custody, possession, or under their control which relate to Alocasia Limited and its dealings, affairs and property.
2. The Respondents produce, file and serve affidavits providing an account of their dealings with Alocasia Limited and all information they have on Alocasia Limited's dealings, affairs and property.
3. The Respondents attend court to be publicly examined under oath on a date and time to be fixed and that the Applicants be at liberty to examine the Respondents on the dealings, affairs and property of Alocasia Limited save that no other order shall be sought where prior to the determination of the Application each of them have to the Applicant's satisfaction made themselves available to be privately interviewed.
4. The Respondents pay the costs of this application.
That application was served by solicitors acting for the Applicants on solicitors acting for the Respondents, and included reference to the two Applicants, who were Bryan Jackson and James Douglas Ernle Money, the joint liquidators of Alocasia Limited.
1. Pursuant to CPR 19.2(2) the Proposed Additional Parties be joined as Respondents to the Applicants' application, pursuant to sections 235 and 236 of the Insolvency Act 1986, against Baker Tilly and Baker Tilly UK Audit LLP in the Matter of Alocasia and in the Matter of the Insolvency Act 1986 …
2. Costs in the application.
There was also reference to the application being an abuse of the powers and the process of the court in the context of section 212 proceedings. I will come to those in due course. That was settled by Enyo Law LLP, solicitors acting on behalf of the Additional Party. In support of that there is an Additional Party witness statement from Steven Craig McDonald, dated 11th December 2013, which exhibited further documents.
III THE FACTS:
7 The Company was incorporated on 6 November 2002. On 6 August 2004 Ivor Spiro and Mark Gershinson were appointed directors and Mark Thompson company secretary. The Company was actually a subsidiary within a group of companies known as the 'Minton Group'. The Company was not however incorporated by Minton Group Limited nor any of its subsidiaries/officers.
8 In fact, prior to 6 August 2004, the Company was a subsidiary within another group of companies known as the 'Future Group' (headed by Future Plc). In very brief terms, whilst the Company was a subsidiary in the Future Group, it acquired 12.5% of the issued shares in another Future Group company, Future Publishing Holdings Limited. The accounts of Future Publishing Holdings Limited included a loss of £256 million and so, when the Company acquired its 12.5% shareholding, its own accounts were drawn to reflect an apportioned loss of £32 million. When the Company was sold to the Minton Group, that £32 million loss was transferred with it. An intra-group reorganisation then took place. This convoluted arrangement (the Future Group and the Minton Group hoped) would provide the Minton Group with a sizeable paper loss against which group chargeable could be offset, thereby reducing the Minton Group's overall tax liability …
9 In due course, attempts were duly made by the Minton Group to elect for group chargeable gains to be offset against the Company's loss. In 2006 and 2007 £12,257,538 of chargeable gains were allocated to the Company. In 2010 HMRC rejected Minton Group's assertion that the Company's negligible value claim was competent (and therefore its purported £32 million unavailable for offset purposes). HMRC duly amended the Company's corporation tax return increasing the sum payable to £4,681,262.55. The Company appealed the decision to the Tax and Duties Tribunal but was ultimately unsuccessful.
10 After the tribunal proceedings had concluded, on 29 November 2011 a general meeting took place at which resolutions were passed placing the Company into voluntary liquidation and attempting to appoint Andrew Stoneman and Paul Williams of MCR (now Duff and Phelps) as joint liquidators. At the subsequent meeting of creditors, resolutions were passed to appoint the first Applicant and myself as joint liquidators. The Company entered into liquidation with an estimated total deficiency to creditors of £4,906,651."
The company referred to above is, of course, Alocasia Limited.
"The company had a deferred tax asset relating to unutilised capital losses at the beginning of the period. During the period, gains for corporation tax purposes of approximately £11,120,000 have been elected to the company by fellow subsidiary companies. These have been fully relieved by utilisation of the company's losses."
and page 8 of the internal accounts indicates:
"The investment represents 8,475,270 shares (12.5% of the issued share capital) in Future Publishing Holdings Limited. The shares were acquired at market value, which was less than £1."
It also indicates at page 9 as follows:
"The immediate parent company is Minton Land Properties Limited, the ultimate company and controlling party is Minton Group Limited. Group accounts of the ultimate parent company only are drawn up and can be obtained from the Registrar of Companies, Companies House ..."
Thus there is a separate set of accounts, not before me, for the Minton Group.
"The company had a deferred tax asset relating to unutilised capital losses at the beginning of the period. During the period, gains for corporation tax of approximately £1,404,00 have been elected to the company by fellow subsidiary companies. In the 2005 accounts the amount elected for that period was disclosed at £11,120,000 but that assessment has been revised downwards to £5,280,000 since preparation of those accounts."
There is reference to the investments in Future Publishing Holdings, that is 8,475,270 shares being 12.5%; and also to the holding company being the Minton Group.
"… regarding the Inspector's letter 11.11.05, which enquired into Alocasia's capital loss. I understand that the other companies formed by The Future Network at the same time, which received the rest of the FPH shares, have received identical letters.
The response was sent to me by Jane Burgoyne at TFN yesterday. A copy of her email is attached …"
Reference is made to similar matters. There is a further email at 5.46 on the same day which says:
"Thank you for your email. As your email only contains a dopy of the draft response to the Revenue letter and not the actual letter to which it is seeking a reply …
I think that the point that the Revenue may be seeking to argue is that is a loss arises under section 24(2) [of the 1992 Act] …"
A further email follows at 6.48 on that same day, reference being made to the clarity of the Inspector's letter and other such matters under that Act.
"From our records, we understand that you were the auditors and tax advisers to the Company who formed part of the Minton Group until December 2010.
May I ask that you assist with our investigation as Liquidators by providing us with any information relating to the tax advice given to the Company."
A response came from Baker Tilly on 10th January 2012, referring to a letter of 14th December 2011 saying this:
"I can confirm my firm were auditors to the Company. Contrary to the statement in your letter, Baker Tilly were not tax advisers and have not provided any tax advice, to the Company."
Alocasia Limited ('the Company')
Bryan Jackson and I were appointed Joint Liquidators over the Company following a meeting of creditors on 30 November 2011.
We write following our previous letter dated December 2011 regarding your position as Auditors and Tax advisers to the Company, which was a subsidiary of the Minton Group.
Whilst you had previously advised you were not engaged as tax advisers to the Company, we believe there would have been audit work carried out on the tax position. In particular, the tax losses of the Company would have needed to have been verified in order to be offset against other completes within the Minton Group as part of the tax avoidance scheme under which the Company was acquired in the first place.
Can you please therefore deliver your audit files and any other advice and correspondence in relation to the Company to enable us to carry out our statutory investigations as liquidators of the Company."
That is signed by James Money, joint liquidator.
"I confirm that Baker Tilly, and subsequently Baker Tilly UK Audit LLP, were the Company's auditors for the period 8 August 2004 to 31 July 2005 and for the years ended 31 July 2006 to 31 July 2010 inclusive. Neither Baker Tilly UK Audit LLP (nor any other entity in the Baker Tilly group) has been engaged by the Company to provide any other services or advice.
Whilst we do not wish to be unhelpful, it is not this firm's general policy to deliver up the entirety of its audit files. In addition, in relation to this particular matter there are likely to be issues of confidentiality due to the fact that we were also auditors of the Company's ultimate parent, Minton Group Limited (and certain other subsidiaries). I understand that the papers for the audits of the parent company and its subsidiaries would have been stored on the same audit file (being a paper file for the years 2005 and 2006, and an electronic file for all subsequent years). However, if you would confirm the nature of your investigations, together with any specific documents or categories of documents (with relevant date ranges where possible) that you would like sight of to assist you in your investigations, we shall be happy to consider your request further."
"In summary, our clients require you to deliver up:
(1) all of your audit files …
(2) any due diligence concerning the acquisition of Alocasia;
(3) any property belonging to Alocasia;
(4) all correspondence with Alocasia/its directors …
(5) all papers concerning Alocasia's affairs …
(6) all advice that you provided to Alocasia/its directors …"
"12 The scope of information disclosable under the above provisions is exceptionally wide. As such, the following papers clear and naturally fall to be disclosed:
12.1 your clients' audit files for Alocasia …
12.2 the due diligence upon the acquisition of Alocasia …
12.3 omitted - see below
12.4 all correspondence …
12.5 all papers …
12.6 all advice …"
(Paragraph 13 then refers to the sections of the Act.)
"14 We have previously said that our clients are investigating the affairs of Alocasia during the years leading up to its insolvency but unfortunately have been only been able to recover very limited papers. This has placed our clients in a difficult position, not least as Alocasia entered liquidation with a massive deficiency and in circumstances which our clients are genuinely and proper concerned to understand. Our clients need to understand how this deficiency arose and whether any recoveries may be made for the benefit of creditors and in accordance with their duties.
15 It appears to our clients that given the size of the deficiency, the nature Alocasia's trading (or non-trading) and the absence of available records, that our clients must review the accounting records for the entire period of Alocasia's incorporation, charting its financial fortunes from incorporation to liquidation. As part of this exercise, our clients will need to investigate the treatment of Alocasia's tax affairs, the conduct of Alocasia's officers, dealings with HMRC, dealings intra group and in relation to the initial acquisition. Your clients were Alocasia's auditors for a substantial period of time … [they set out the years]. They were involved throughout almost the entirety of Alocasia's incorporation and importantly at the critical periods, such as during the difficulties it had in relation to taxation and shortly prior to liquidation. As Alocasia's auditors, your clients would have been required to collate and analyse various information and records and are therefore well placed to assist our clients' enquiries now. Indeed, the papers they hold may be the only papers available to our clients.
16 In summary, in these circumstances the papers listed within the numbered sub-paragraphs of paragraph 12 above are reasonably required …
17 We do not intend to divulge to you or your clients any further details of our clients' investigations, their conduct of the liquidation nor their intentions going forward. Unless you are prepared to provide clear authority indicating that they are required to do so we consider that the reasonableness of our clients' request is now fully established."
Then they refer to oppressiveness and confidentiality.
"1 We are instructed by Bryan Jackson and James Money of PFK (UK) Limited, the joint liquidators of Alocasia Limited.
2 This is a letter of claim in accordance with the Practice Direction …
Particulars of Breach of Duty
15 Turning to the losses caused to Alocasia by these arrangements, you allowed other group companies to allocate their chargeable gains …
16 There is no scenario in which such action was in the interests of Alocasia itself. Alocasia was a non-trading holding company incorporated for the purposes of the wider Minton/Future group scheme. Alocasia assumed vast group chargeable gains and the resultant liability for corporation tax. Had the scheme worked as originally intended, Alocasia would not have sustained a loss to the extent that the negligible value claim was sufficient to offset the liabilities transferred. As it was, Alocasia assumed the risk that the scheme would be disallowed, and having been disallowed, assumed a liability to HMRC for £4.68 million."
A similar figure to the one I have referred to earlier in those company accounts.
"1 A declaration that the Respondents have acted in breach of their fiduciary duties …
2 An order that the Respondents jointly and severally are ordered to pay to the Applicants the sum of £4,681,262.55 …
3 Alternatively, an order that the Respondents do contribute ..."
That is supported by a further witness statement from James Douglas Ernle Money dated 11th April 2013.
"As to paragraphs 15 and 16 of the Claim Letters, it is agreed that Messrs. Gershinson and Spiro allowed chargeable gains to be allocated to Alocasia on 27 July 2006 and 17 July 2007 but it is denied that this was done in breach of any duty owed to Alocasia. The Directors were acting at all relevant times on advice from PwC that the tax mitigation planning would be effective. Other professional advisers, including Baker Tilly as the auditors, had also considered the risk of the tax planning failing. For example, in respect of the audit of Alocasia's July 2005 financial statements, Baker Tilly, as auditors for Alocasia (and other company in the Minton Group), considered, in detail, whether a provision or note should be made in the company's accounts in respect of the risk of the tax planning failing. After careful consideration Baker Tilly were satisfied that the risk of the tax planning failing and a tax liability arising in Alocasia was remote. Therefore, in accordance with the requirements of the relevant accounting standards, Baker Tilly did not consider it necessary to recommend that a contingent liability note be made in the accounts."
There is a footnote then to the Financial Reporting Council's Financial Standard, s.12, which is a well known standard. It makes reference to a letter of representation of April 2006 to Baker Tilly in respect of the audit of Minton Group in 2005.
"I noted above that the records recovered for the Company are limited. However, within those limited papers there is certain correspondence which demonstrates that the first and second Respondents (and their staff) were involved in the affairs of the Company in a broad capacity, limited not just to audit work. To explain I first need to comment on contents of limits …"
He then refers to the very letters I have quote from already, and I therefore do not quote those, and continues:
"20 Whilst in an ideal world we would wish to support this application with further evidence of the specific involvement of the Respondents and their staff, we are inevitably hampered by the lack of available records and the first and second Respondents' effective disinclination to provide even partial assistance. We are simply able to say that the Respondents were for many years involved in the audit of the Company's accounts. As a result of that instruction the Respondents would have needed to conduct certain enquiries into the Company's financial affairs, one part of which would have been the Company's tax affairs and its interaction with HMRC … The Respondents therefore appear well placed to provide assistance in accordance with our enquiries into the Company's affairs."
Further on in paragraph 28 he says this:
"Needless to say, Moon Beever's exhaustive letter did not lead to disclosure taking place. After a further holding letter and chaser, Mayer Brown responded on 1 May 2013 substantially changing tack. Instead of responding to the reasonable request, they focused instead on a stated concern that if (which was not admitted) grounds existed for disclosure to be given, the appropriate mechanism for disclosure was CPR 31.17. Mayer Brown noted that they had reviewed the letters before action, application notice and detailed witness statement with wholly separate proceedings against the Company's directors. They then asserted that a third party disclosure application should be made pursuant to the Civil Procedure Rules within those wholly separate proceedings, rather than pursuant to sections 35-236 Insolvency Act 1986. No authority was provided as to this leap of logic, nor was any substantive response provided to the points raised in Moon Beever's letter dated 25 March 2013. Mayer Brown simply reserved their clients' position thereto."
I have referred to those two letters, and continued:
"29 The first and second Respondents were invited to provide disclosure long before the wholly separate proceedings were issued. Whilst it is possible that any disclosure that the Respondents are eventually compelled to give may inform those proceedings, that does not prevent documentation being relevant to the off-holders' enquiries as to the affairs of the Company more generally. The proceedings are now clearly established, inevitably without reference to the papers that the Respondents have failed to disclose. Even if the papers were critical to the wholly separate proceedings against the directors, the existence of those proceedings would not in itself dispose of the Respondents' obligations under sections 235-236 of the Insolvency Act 1986.
"As we mentioned in our letter of 7 May 20113, the information that 'may relate' to Alocasia and its associated companies, which would need to be searched by our clients, amounts to 26 boxes of hard-copy documents, 0.258GB of electronic audit files for four accounting periods and 125GB of electronic mail boxes, archived emails and associated attachments and electronic drives. At this stage our clients have preserved electronic data relating to those who worked on potentially relevant assignments. In the circumstances, this information will need to be searched twice, first to find those documents that may be relevant to the Minton Group and second, to isolate those that are identified by you in accordance with the proposed draft order.
Given the large amount of data, it is unreasonable for your clients to seek the production of documents in such broad and unfocused terms. We continue to consider that it can only be helpful to the court for the parties to seek to agree an order with your clients before the hearing listed in April 2014, if only to identify the areas where the parties differ.
We have accordingly compiled a high-level of the categories of documents …
A. Hard copy statutory audit papers comprising the whole or part files, which are labelled or tabbed, in whole or in part as appropriate, as Alocasia, for accounting periods 2005 - 2009.
1 audit working papers files contained the following tabs …"
They are listed from (a) to (v) inclusive, of which (s) is taxation.
"2 tax audit files;
3 accountancy papers;
4 signed accounts.
B. Papers and documents resulting from work undertaking by Baker Tilly as statutory auditors of the Minton Group in respect of acing periods 2005 - 2011."
There is a large list of matters there, including:
"20 electronic consolidated audit files for whole Minton Group for 2007 - 2011, which contain a common structure …"
and they set out the structure at (a) to (q), but (n) is taxation. They then indicate in the second to last paragraph:
"Separately, we are aware that the claim against Mark Gershinson, Ivor Spiro and Mark Thompson is ongoing. In the event that disclosure in the GST Claim were to take place, or if the GST Claim were to settle prior to the listed court hearing, please would you confirm whether your clients would continue to pursue the application against our clients."
It appears that there was no response.
IV THE LAW:
"235(1) This section applies as does section 233; and it also applies, in the case of a company in respect of which a winding up order has been made by the court in England and Wales, as if references to the office-holder included the Official Receiver, whether or not he is the liquidator.
(2) Each of the persons mentioned in the next sub-section shall -(a) 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
(b) attend on the office-holder at such times as the latter may reasonably require.
(3) The persons referred to above are -(c) those who are in the employment of the company, or have been in its employment (including employment under a contract for services) within that year, and are in the office-holder's opinion capable of giving information which he requires.
(4) For the purposes of sub-sections (2) and (3), 'the effective date' is whichever is applicable of the following dates -(d) the date on which the company went into liquidation.
(5) If a person without reasonable excuse fails to comply with any obligation imposed by this Section, he is liable to a fine and, for continued contravention, to a daily default line."
"(1) This section applies as does section 234; and it also applies in the case of a company in respect of which a winding up order has been made by the court in England and Wales as if references to the office-holder included the Official Receiver, whether or not he is the liquidator.
(2) The court may, on the application of the office-holders, summon to appear before it -(a) any officer of the company,
(b) any person known or suspected to have in his possession any property of the company or supposed to be indebted to the company, or
(c) any person whom the court thinks capable of giving information concerning the promotion, formation, business, dealings, affairs or property of the company.
(3) The court may require any such person as is mentioned in sub-section (2)(a) to (c) to submit to the court an account of his dealings with the company or to produce any books, papers or other records in his possession or under his control relating to the company or the matters mentioned in paragraph (c) the sub-section.
(3A) An account submitted to the court under sub-section (3) must be contained in -(a) a witness statement verified by a statement of truth (in England and Wales) …
(4) The following applies in a case where -(a) a person without reasonable excuse fails to appear before the court when he is summoned to do so under this Section, or
(b) there are reasonable grounds for believing that a person has absconded …"
Then sub-sections (5) and (6) for present purposes I do not read.
"Held, dismissing the appeal, that the power to make an order under section 236 of the Insolvency Act 1986 was not confined to documents which could be said to be necessary to reconstitute the state of the company's knowledge, even if that might be one of the purposes most clearly justifying the making of an order, but extended to all documents which the administrator reasonably required to see to carry out his functions; that the Applicant had to satisfy the court that after balancing all the relevant factors, there was a proper case for making the order; that since the information sought was necessary to enable the administrators to carry out the administration and production of the documents did not impose an unnecessary and unreasonable burden on the accountants, the registrar's order, despite its width, was proper in the exceptional circumstances."
It refers to various pages and cites the dictum of Buckley J in In re Rolls Razor Limited, and also cites Cloverbay Limited v. Bank of Credit and Commerce International SA, which was considered:
"Per curiam. An application is not necessarily unreasonable because it is inconvenient for the addressee of the Applicant or causes him considerable work or may make him vulnerable to future claims, or is addressed to a person who is not an officer or employee of or contractor with the company in administration, but all of these will be among the factors relevant to be taken into consideration."
Of the cases cited, apart from the above two I have just described, there is also reference to Highgrade Traders, which I will also come to.
"I am therefore of the opinion that the power of the court to make an order under section 236 is not limited to documents which can be said to be needed 'to reconstitute the state of the company's knowledge' even if that may be one of the purposes most clearly justifying the making of an order.
At the same time it is plain that this is an extraordinary power and that the discretion must be exercised after a careful balancing of the factors involved - on the one hand the reasonable requirements of the administrator to carry out his task, on the other the need to avoid making an order which is wholly unreasonable, unnecessary or 'oppressive' to the person concerned."
Then reading down at G-H:
"The protection for the person called upon to produce documents lies, thus, not in a limitation by category of documents ('reconstituting the company's state of knowledge') but in the fact that the Applicant must satisfy the court that, after balancing all the relevant factors, there is a proper case for such an order to be made. The proper case is one where the administrator reasonably requires to see the documents to carry out his functions and the production does not impose an unnecessary and unreasonable burden on the person required to produce them in the light of the administrator's requirements. An application is not necessarily unreasonable because it is inconvenient for the addressee of the application or causes him a lot of work or may make him vulnerable to future claims, or is addressed to a person who is not an officer or employee of or a contractor with the company in administration, but all these will be relevant factors, together no doubt with many others."
Reference is then made to the case of Cloverbay, and the reference to Nourse LJ, which I will come to.
"… in deciding whether to order examination under section 236 of the Insolvency Act 1986 on an application by the liquidator of a company, the test whether the liquidator had reached a firm decision to bring an action against the party against whom the order was sought was not the appropriate test, for the court had an unfettered discretion under the Section; that in exercising that discretion the court had to balance the requirements of the liquidator against possible oppression of the party sought to be examined, bearing in mind that the purpose of the section was to enable the liquidator to reconstitute the knowledge the company should possess in order to discharge his duties to the creditors and possibly the contributories; that the case for making an order against an officer or former officer would usually be stronger than that against a third party …"
So far as the ratio is concerned as set out in the headnote, I refer to the main parts at page 102A:
"Nor do I think that there is any other simple test that can be substituted. The words of the Insolvency Act 1986 do not fetter the court's discretion in any way. Circumstances may vary infinitely. It is clear that in exercising the discretion the court has to balance the requirements of the liquidator against any possible oppression to the person to be examined. Such balancing depends on the relationship between the importance to the liquidator of obtaining the information on the one hand and the degree of oppression to the person sought to be examined on the other …
That said, there are a number of points which in my judgment should be borne in mind in exercising the discretion. First, the reason for the inquisitorial jurisdiction contained in section 236 of the Act of 1986 is that a liquidator or administrator comes into the company with no previous knowledge and frequently finds that the company's records are missing or defective. The purpose of section 236 is to enable him to get sufficient information to reconstitute the state of knowledge that the company should possess. In my judgment, its purpose is not to put the company in a better position that it would have been enjoyed if the liquidation or administration had not supervened. In many cases an order under section 236 may have the result that the company is in such improved possibility, e.g. an order for discovery of documents made against a third party in order to reconstitute the company's own trading records may disclose the existence of claims which would otherwise remain hidden. But that is the result of the order not the purpose for which it is made."
Then reading from page 103C:
"Fourth, although the section treats the production of documents and the oral examination of witnesses together, an order for oral examination is much more likely to be oppressive than an order for the production of documents. An order for the production of documents involves only advancing the time of discovery if an action ensues: the liquidator is getting no more than any other litigant would get, save that he is getting it earlier."
"Parliament's purpose in vesting this or that power in the court can usually be discerned without much difficulty. In most cases the court may only have to ask itself whether a proposed exercise of the power will serve that purpose or not and, if it will, whether in all the circumstances it is proper that it should be made. But sometimes a proposed exercise of the power will raise a direct conflict between the purpose for which it is given and the purpose of some other settled rule of law or practice. When that happens a balance must be struck between the two, a balance subject to a greater tension than the normal.
The purpose of the power which is vested in the court by section 236(2) of the Insolvency Act 1986 is to enable an 'office-holder' to obtain information which will enable him to discharge the duties which he owes to others, usually the creditors and sometimes the contributories of the company. The persons who may be brought for the court include: '(c) any person whom the court thinks capable of giving information concerning the promotion, formation, business, dealings, affairs or property of the company.' Such person may be those who have had some more than occasional connection with the company, for example employees, accountants, solicitors, surveyors and other agents or bankers. Or they may be people who have dealt with the company in the course of its business, either regularly or only occasionally, or people who have had no contractual connection with it at all, for example the wife of a director."
That is as far as I need to read from that authority.
"(2) The court had jurisdiction under section 268 of the Companies Act 1948 to order an examination … However, on the facts, as the only undisclosed information of any significance in the possession of Mr. Alexander was in the reports, and as these were covered by legal professional privilege, the court should in the exercise of its discretion discharge completely the order made against Mr. Alexander."
Certain page references are given there, and I read from those, in particular at I:
"Certainly, as it seems to me, the court would not ordinarily, as a matter of discretion, summon a person under the section unless it deemed him capable of giving some information which was likely to be of assistance to the liquidator in carrying out his duties, but I can see no context, as a matter of jurisdiction, for reading into the section some subject adjective as that which the appellant suggests.
I turn, therefore, to the appellant's second point which is that the liquidator in any event failed to lay any proper foundation for the exercise by the court of its jurisdiction. In essence, this is a reiteration of the same submission as has already been made with regard to jurisdiction. No doubt it is for the liquidator (or other Applicant for an order under the section) to satisfy the court that it does, indeed, deem the person sought to be summoned capable of giving information. But, as I read the authorities, this involves no more than showing that the person is likely to have some information (which may or may not be direct and may or may not be admissible as evidence) which will assist the liquidator to carry out his functions, even if it may do no more than assist the liquidator to a better understanding of the company's affairs. In this context the court gives great weight to the liquidator's views as to the type of information which he requires (see Re Spiraflite Ltd  2 All ER …)."
"I start with the statutory scheme. The primary duty of a liquidator of a company being wound up by the court is to collect its assets with a view to discharging its liabilities to the extent the assets permit. To perform that function that liquidator needs information, and the companies legislation has for many years given the liquidator power to obtain it from those who can be expected to have relevant information."
He refers to two methods. Then at paragraph 25 he says:
"Another innovation was the express duty imposed by section 235 on past and present officers of a company and other persons within section 235(3) to co-operate with the office-holder of the company. The only qualification on the obligation to give information is that it should be reasonably required by the office-holder. The sanction for an officer for failing to comply with a reasonable requirement is qualified by the condition that he should have so failed 'without reasonable excuse'.
It is common ground that sections 235 and 236 are to be read together, but it is plain wherever section 235 contains a mandatory obligation on the officer to give information reasonably required, the court has a discretion whether to order a private examination, in contrast to a public examination …"
Further, at page 599B-C, he says this:
"But that view expressed as general guidance deserves the greatest respect, the more so because, save on one point not material to the present case, the balancing exercise suggested by Sir Nicolas Brown-Wilkinson V-C was approved by the House of Lords in In re British and Commonwealth Holdings plc. That was a case where third parties, auditors of a company, sought unsuccessfully to resist an order under section 236 for the production of documents relating to audits."
That seems particularly relevant to this case.
"It is common ground that section 236 confers on the court a wide a discretion which is not fettered by statutory conditions. But (in the words of Steyn LJ in Re Arrows Ltd. (No.2)  1 BCLC 355 at page 361B:'That does not mean that the power to order an examination is open textured. It is not. The common law supplements the omission of the legislature. The power under section 236 may only be used for the purpose for which the power created, that is, to authorise an examination in order to facilitate the tracing and collection of assets of the company and the bringing of claims against persons or companies. Moreover, the power is only to be exercised after the judge has balanced all relevant considerations for and against the ordering of an examination, and only if he ultimately concludes that it is just and convenient to order an examination.'
The width of the discretion, and the need for a balancing exercise by reference to the circumstances of the particular case, have been emphasised by higher courts in a number of recent cases …"
He cites Re Cloverbay and British Commonwealth Holdings, both of which I have quoted from, and carries on saying that they:
"… are the most important. In Cloverbay the Court of Appeal rejected (as an inflexible test) what was referred to in argument as the 'Rubicon test' (see Receive Castle New Homes Limited ."
Then further down at page 570H:
"Approach to the balancing exercise
On any opposed application for an order under section 236 the court should, in line with the observations of Lord Slynn …"
to which I have just referred -
"… which I have already set out, first see whether the office-holders made out a reasonable for a oral or (as in this case) documentary evidence. If a reasonable requirement is made out, then the court has to carry out a balancing exercise, weighing the likely importance of the information to the office-holders against the risk of oppression to the witness. The risk of oppression may arise from one or more of a variety of factors of which the most are any exposure of the witness to self-incrimination (in respect of civil or criminal liability) and the disruption, stress and expense likely to be caused to the witness in complying with the order.
Then further down at page 570B:
"Mr. Falconer described the liquidators' requests as unfocused, as part of a fishing expedition, and as going beyond the scope of the discovery likely to be required in any eventual proceedings.
However there is (as Mr. Sheldon submitted and as I accept) a basic and important distinction between the procedures which the court may order under section 236, on the one hand, and discovery on the other hand. Discovery (like other procedures to which accusations of 'fishing' may be pertinent, such as interrogatories and writs of subpoena duces tecum) is naturally constrained by and limited to issues which have, by then, been raised and pleaded in adversarial proceedings. The same is not true of applications under section 236, whose object (as Sir George Jessel MR said in Re Gold Co (1879)) is to enable the office-holders to find out facts before they action (and, it may be, to discover that an action would not succeed). Indeed, it is as rue Cloverbay, as behalf, that where office-holders have already put together a fairly clear claim against a proposed defendant, the balance would normally come down against making an order under section 236 against that person …"
citing Sir Nicolas Browne-Wilkinson said in that case, and also citing Ralph Gibson LJ in British and Commonwealth in the Court of Appeal. Then he says:
"As Mr. Sheldon has pointed out, r.9.(1) of the Insolvency Rules 1986 requires an application under section 236 to be accompanied by a brief statement and Mr. Sheldon emphasised 'brief' of the grounds on which it made."
Then at page 570G:
"I must therefore go on to perform the balancing exercise as best I can. I do to some extent accept Mr. Falconer's submission that I have to do so on incomplete information, but that is not unusual. In the nature of things the office-holders do not know all the underlying facts, and the potential witnesses may choose (as the Respondents have chosen in this case) not to put in affidavit evidence as to the underlying facts. (I have already mentioned the limited scope of Mr. Harvey's affidavits)."
"The essential conditions for office-holders applying for relief under section 236 are to establish a reasonable requirement for information (a matter on which the onus is on the office-holders, but on which the view the views of the office-holders themselves are normally entitled to a good deal of weight) and then for the court to carry out a balancing exercise, weighing the potential importance of the information to the office-holders against the potential oppressiveness to the Respondents of being required to provide it. Some pertinent observations about circumstances giving rise to oppression and degrees of oppressions, were made by Ralph Gibson LJ in Re British and Commonwealth Holdings Plc …"
He then goes at page 223:
"I return to the two basics - a reasonable requirement on the part of the office-holders and, if that is established, the balancing exercise. Miss Gloster has, in impressively sustained submissions, sought to dissuade me from accepting Mr. Pallen's assertion that he has a reasonable requirement for the English documents. Mr. Pallen has gone further and said in his third report that they are likely to be 'absolutely crucial' to any sensible assessment of whether to proceed with the action against KPMG. Mr. Pallen has referred to two documents by way of example, engagement letters and audit check lists, which Mr. Gha, in a late second affidavit, says are not extant. Mr. Pallen has then emphasised that what the liquidators need to know is what, if anything, was done by the UK firm, that is the English KPMG partnership. The fact that the stated purpose of the liquidator's requirement, and the only stated purpose, is to assess the chances of success in litigation, cannot by itself be a bar since as long ago as 1879 Sir George Jessel MR said that that was the whole object of the jurisdiction (see Re Gold Co). Even if it is not the whole object, it is one important object.
Against this, Miss Gloster has submitted that the liquidators have failed to discharge the onus of demonstrating a requirement to more than the 27 files of documents that they already have. They yare not entitled, she says, to be put in a position of omniscience before putting in a statement of claim in the action which they have already started. They have no right to read the whole of KPMG's files in England before pleading their case. To give that right would, she says, be to give them extraordinary rights as ordinary litigants bringing an ordinary negligence claim.
There are powerful submissions, but I have come to the conclusion that the liquidators have discharged the onus of showing a reasonable requirement. That is what they have to show, not absolute need (see Sir Nicolas Browne-Wilkinson V-C in Re Cloverbay). Nor are the liquidators under a duty to make out that requirement in detail (in as much detail, for instance, as they might be on an application for discovery where issues have already been defined by pleadings)."
"The appeal is brought under Insolvency Rule 7.47(2) and is by way of review of the decision by the District Judge. Accordingly, I should not interfere with his decision unless it is based upon an error of law or a wrongful exercise of discretion. As to the latter, it is not appropriate for me to set aside the decision simply on the basis that I might have exercised my discretion differently."
The background is set out in paragraphs 5 to 10, and I do not quote them all, though they can be taken to be read into this judgment. There is then reference at paragraphs 12, 13 and 14 as to the approach taken to this case by BDO, who in that case were being asked for documents rather than as in this case. The judge then sets out the various letters on the application itself, which again I do not read in detail. So far as material, at paragraphs 28 and 29 the learned judge cites British and Commonwealth Holdings, which I have cited. He quotes from Lord Slynn as to the appropriate law. He goes through the grounds of appeal. Essentially, the most important parts are paragraphs 33 and 35. I reverse the order for emphasis:
"35 I am unable to accept this criticism. It is no doubt true to say that the purpose of the application was to establish the true financial position of the Company, to investigate fully the affairs of the Company and to reconstitute the state of knowledge of the Company. But this is to do no more than state a liquidator's function and is a matter which the District Judge had well in mind, as appears from paragraph 5 of the decision. What the liquidator has failed to do in the evidence in support of the application is to explain why the documents sought are required in order to carry out those functions. The Liquidator must establish a reasonable requirement for the documents he seeks and that is what the District Judge looked for but failed to find in the evidence in support of the application. He considered that, in the light of the circumstances to which I have referred, it was not good enough simply to state that the documents were required without any further explanation. That, in my judgment, was a view he was entitled to come to, particularly bearing in mind the scope of the request and the inevitable cost and burden of complying with it."
The previous paragraph, paragraph 33, dealt with the second limb of appeal:
"Secondly, it seems to me that it is important that the application in issue be considered against the whole of the background to which I have referred and that is what, in my judgment, the District Judge did. In particular, I have in mind the following. The application relates to the a liquidation which happened over seven years ago and yet the Liquidator has provided no details of what investigations have been carried out over that period, what those investigations have revealed and what, if any, gaps remain. Further, the evidence of BDO shows that their involvement was relatively limited and came to an end at the latest in July 1997. Further, their last material involvement in the affairs of the Company was in July 1996, that is to say a year before the shares were first suspended and nearly two years before the Company entered compulsory liquidation. Despite this limited involvement, the application is made on an extremely broad front and seems to extend to all documents which BDO might conceivably have. Further, the letter sent on behalf of the Liquidator on 27 January of this year reveals that the Liquidator is seeking documents which are in the public domain or which relate to activities that took place after BDO resigned as auditors. It was in the light of all of these circumstances that the District Judge came to the conclusion that the evidence submitted on behalf of the liquidator did not establish a reasonable need for the documents requested."
That seems to me to be a fact sensitive case on appeal which cites and confirms some of the cases which I have more fully set out for the purposes of this judgment.
(c) The confidentiality point. The documents relating to two transactions on which BMN had defaulted belonged prima facie to the company. This was so even where the Respondents had acted for a third party as well as BMN as in this situation each client would have equal access to the papers. Any such documents in the possession of the Respondents were not subject to the privilege since they belonged to BMN and the Respondents could not assert privilege against the company. Questions of privilege only arose with respect to documents which came into existence in connection with the Respondents acting solely for a third party and it was for the Respondents to claim privilege with respect to these matters and, if the parties could not agree, the matter would have to be restored for argument."
I note from page 366 under the heading "Professional privilege". There is then set out on pages 336 and 337 the relevant dicta. I also note at page 335D reference is made to "information and enquiries".
V THE DECISION:
(i) the question of reasonable requirements for the Applicants to carry out their task;
(ii) whether the order is wholly unreasonable, unnecessary or oppressive to the Respondents;
(iii) the position of the Additional Party, and possibly the Minton Group.;
(i) Reasonable requirements of the Applicants to carry out their duties:
"The purpose of the application is addressed above. As set out in the Joint Liquidators' evidence, the documentation that they seek is required to investigate the Company's affairs and reconstitute its records (in circumstances where the books and records in their possession are very limited).
Reference can be made to further parts of that skeleton argument, in particular paragraph 10:
"From the period end 31 July 2005 until liquidation Baker Tilly were the Company's auditors. It appears from the correspondence between Mr. Thompson and Baker Tilly that Baker Tilly advised upon the tax avoidance scheme, the legitimacy of which they would also have been required to consider in auditing the Company's accounts."
and I read from paragraphs 22 and 23:
"22 The Joint Liquidators are required to investigate and understand the Company's affairs and, in doing so, to reconstitute the Company's records. They are experienced and respected insolvency practitioners from a substantial firm (breakdown) and their views as to the need for the documentation sought should be given substantial weight.
23 That the Company's former accountants' paper should be relevant to the Joint Liquidators' inquiries should be obvious, particularly where the books and records handed over to the Joint Liquidators by the Company's former officers were so limited."
He cites the witness statement of Mr. Money, to which I have already referred, and which exhibited the correspondence I have set out and which was relied upon in the Applicant's oral submissions.
"As a starting point, they therefore need to demonstrate a 'reasonable requirement' to see the Respondents' working papers and other documents which were not created during the course of the Respondents' retainer by Alocasia before the court will consider the possible exercise of its discretion in the Liquidators' favour."
It then refers in paragraphs 26 to 29 to various items of evidence, some of which I have referred to, but it can be assumed that it is read into this judgment as needs be.
(ii) Is the order wholly unreasonable, unnecessary or oppressive to the Respondents?
(iii) the position of the Additional Party, and possibly the Minton Group of companies
VI THE ORDER: