Out-Law / Your Daily Need-To-Know

English liquidators permitted to compel documents from EU-based companies

Out-Law Legal Update | 26 Jun 2020 | 11:12 am | 3 min. read

The High Court has addressed conflicting English law on whether English insolvency officeholders may use their powers under English insolvency legislation to compel entities to produce documents, if those entities are not in the UK.

The High Court has weighed in on this conflicting area of law, deciding on the one hand that English insolvency legislation does not have extra jurisdictional power to compel the production of documents from outside the UK; but on the other hand that EU insolvency regulations do give extra jurisdictional power to English insolvency officeholders in respect of the EU.

The upshot of this case appears to be that English insolvency officeholders can compel the production of documents from parties in other EU member states through a jurisdiction provided by EU regulations. The High Court has confirmed that no such jurisdiction exists within English common law.

  • There is conflicting law on whether English insolvency officeholders have extra territorial powers to compel the production of documents by entities outside the UK.
  • The High Court has weighed in on this conflicting area of law deciding that the extra territorial jurisdiction to compel the production of documents outside the UK only exists under EU regulations, not within English law.
  • Re Akkurate Ltd (in liquidation) [2020] EWHC 1433 (Ch)

Background

This case involved the liquidators of a company in liquidation, Akkurate Ltd, who applied to the High Court seeking orders under section 236(3) of the Insolvency Act 1986 to compel Italian resident companies to produce documents relevant to Akkurate. Section 236(3) is a wide power which allows a court to order that directors of a liquidated company or people connected to the liquidated company to produce documents or information to the liquidators. It is the main 'information gathering' tool of English insolvency officeholders to gather documents from third parties, with such information often used to formulate claims for the benefit of the insolvent estate.

In this case, the liquidators of Akkurate were seeking documents from certain companies based in Italy as they were investigating claims concerning potential unlawful use of Akkurate's trade marks.

Divergent authorities

The main legal issue before the High Court was whether a jurisdiction exists under s236(3) of the Insolvency Act 1986 allowing the English court to compel foreign residents to produce documents for the purposes of an English liquidation. This question has been addressed previously in a number of English decisions, with various judges arriving at different conclusions. The divergent authorities on this point all stem from the decision in the 'Tucker' case of 1988..

Tucker is a Court of Appeal case concerning section 25 of the Bankruptcy Act 1914, a similar provision to s236(3) of the Insolvency Act as it allows bankruptcy trustees to compel the production of documents relating to the bankrupt's dealings. In the Tucker case, the Court of Appeal held that the Bankruptcy Act as drafted in 1914 did not provide any jurisdiction to compel foreigners to comply with an order of an English court compelling the production of documents.

Three inconsistent cases have since considered the ruling in the Tucker case and arrived at different conclusions. The first case of Re MF Global UK Ltd before the High Court in 2015 concerned a company in administration, whereby administrators were seeking documents from foreigners under s236(3) of the Insolvency Act. The judge in that case felt that because s236(3) of the Insolvency Act was analogous to s25 of the Bankruptcy Act, the rules of judicial precedence required the Tucker case to be followed and therefore found that even in the context of a company in administration, s236(3) does not provide an extra territorial jurisdiction to the English court.

Two subsequent decisions then followed where the judges distinguished the ruling in the Tucker case by focusing on the fact that s25 of the Bankruptcy Act was drafted in such a way that made the power to compel documents only ancillary to the power to actually compel the individual to give oral evidence in court. It was reasoned on the other hand in these subsequent cases that s236(3) of the Insolvency Act is a standalone power to compel the production of documents, and is not tied to any power to compel the individual to give oral evidence in court. This distinction allowed the judges in the two cases to say that the findings in the Tucker case did not need to be followed, and that therefore extra territorial orders could be made.

Decision

The judge in the Akkurate case agreed with the decision in the MF Global case, adjudging that the ruling in the Tucker case could not be ignored and precedence required that the conclusion be reached that s236(3) of the Insolvency Act does not create an extra territorial jurisdiction under English law.

Despite reaching this conclusion, the judge did find that separate to English common law, the Court of Justice of the EU had clarified that the EU's Insolvency Proceedings Regulation of 2000 extends the territoriality of domestic insolvency provisions. This meant that the High Court had a separate jurisdiction under EU regulations providing extra territorial effect to orders under s236(3) of the Insolvency Act, even if the Tucker case binds English courts.

Discussion

In a roundabout way, the judge in the Akkurate case was simultaneously able to:

  • follow the precedents established by the Tucker and MF Global cases which provide that s236(3) of the Insolvency Act does not provide an extra territorial jurisdiction; and
  • make extra territorial orders under s236(3) of the Insolvency Act by relying on a jurisdiction created under EU regulations.

It should be noted that this decision will only allow for English insolvency officeholders to compel the production of documents under s 236(3) of the Insolvency Act from residents in other EU member states, not other parts of the world. This means that there may be added difficulties with English insolvency officeholders seeking documents from foreigners once the UK formalises its exit from the EU.

Co-authored by Sebastian Jensen, a restructuring expert at Pinsent Masons, the law firm behind Out-Law.