The High Court has held that s.236 of the Insolvency Act 1986 (“IA 1986”) does not have extra-territorial effect, so that the court is not generally permitted to make an order requiring a person outside the UK to produce books and papers and give an account of their dealings with an insolvent company: Re Akkurate Ltd (in Liquidation)  EWHC 1433 (Ch). However, it went on to hold that s.236 could nevertheless have extra-territorial effect against persons resident in the EU via Council Regulation (EC) No 1346/2000 on Insolvency Proceedings (the “Insolvency Regulation”, since recast).
The court in the present case considered conflicting first instance authority, but concluded that it was bound by Court of Appeal authority on the interpretation of a related provision under bankruptcy legislation. If this approach is followed in future cases, an order requiring production and/or an account will be available under s.236 where the respondent to an application is resident in the UK or the EU, but not otherwise. However, until the appellate courts consider the extra-territoriality question under s.236, there will remain conflicting High Court authority which gives rise to uncertainty both for insolvency officeholders and the respondents to applications.
Given that the result in Akkurate also turns on the applicability of the Insolvency Regulation, the law in this area may also be affected by Brexit, particularly if no deal is reached to govern the relationship between the UK and the EU following the end of the Brexit transition period (which is of course due to end on 31 December 2020).
Though not relevant to this case, it is worth noting that production of documents can in certain circumstances be obtained from persons resident outside the EU under the UNCITRAL Model Law. This alternative route involves an application to the court in the place where the person is resident, not an application to the English court.
Natasha Johnson, a partner, and Andrew Cooke, a senior associate, both in our contentious restructuring and insolvency team, consider the decision below, focusing on the jurisdiction aspects but also considering the discretionary factors taken into account by the court in determining the application.
Liquidators were appointed to Akkurate in May 2015. It had previously operated a fashion business, whereby it licensed its trademarks to manufacturers of clothing and accessories.
An Italian company called Zengarini entered into licence agreements with Akkurate in 2008 and 2014. The liquidators issued an application under s.236 of IA 1986 seeking information from Zengarini in relation to its dealings with Akkurate, contending that issues had arisen under the 2014 agreement which required investigation. Amongst other things, it appeared that Zengarini had been continuing to use Akkurate’s trademarks without making payments under the 2014 agreement. Further, Zengarini had continued to deal with the directors of Akkurate even after liquidation had commenced and the directors’ powers on behalf of Akkurate had ceased.
Zengarini refused to provide the requested information. It instead commenced proceedings in Italy against Akkurate in May 2019. The liquidators successfully obtained a stay of the Italian proceedings in light of the moratorium that arose on liquidation.
In May 2020, the High Court considered the liquidators’ application under s.236.
Section 236 of IA 1986 permits a liquidator or administrator to apply to the court for an order requiring any person whom the court considers capable of giving information concerning the promotion, formation, business, dealings, affairs or property of an insolvent company to appear before the court. The court may also require any such person to submit an account of their dealings with the company to the court (generally in the form of a witness statement) or produce books, papers or other records.
Under s.237(3), the court may order that any person who could have been compelled to appear before it had that person been within the jurisdiction shall instead be examined in a place outside England and Wales.
Neither s.236 nor s.237 make express provision as to the ability to make an order against a person who is outside England and Wales. There is conflicting High Court authority as to whether s.236 permits the court to make an order against a person outside the UK. In Akkurate, the judge commented that “much confusion” has been caused by the competing first instance decisions.
The appellate courts have not considered s.236, but have considered two similar provisions:
- Section 133 permits the court to make an order requiring a former officer of an insolvent company to appear before it for public examination. The Court of Appeal held in Re Seagull Manufacturing Co Ltd  Ch 345 that such an order could be made against a former officer who was outside England and Wales, so as to compel that person to come to England and Wales to be examined.
- By contrast, in Re Tucker  Ch 148, the Court of Appeal held that the court’s power in personal bankruptcy to compel any person that might be capable of providing information as to the affairs of the bankrupt, under s.25 of the Bankruptcy Act 1914, could not be used to compel a person outside England and Wales to appear before the court.
The three conflicting first instance decisions on s.236, referred to in Akkurate, are as follows:
- In Re MF Global UK Ltd  EWHC 2319 (Ch), David Richards J held that s.236 did not have extra-territorial effect, adopting the approach in Tucker (which, he noted, had not been questioned in Seagull), so could not be used to obtain production of documents from a person outside the jurisdiction. That was because such a person could not have been compelled to travel to England and Wales to be examined by the court, and the power to order production of documents could only be exercised against a person who could have been compelled.
- By contrast, in Re Omni Trustees (No 2)  EWHC 2697 (Ch), HHJ Hodge concluded that s.236 did permit an order to be made against a person outside the jurisdiction for the production of documentation. The judge distinguished Tucker on the basis that the bankruptcy power treated the production of documents as ancillary to examination by the court, whereas the judge considered that s.236 created two separate powers with different jurisdictional limits. The first was the power to examine, which the judge considered could not be used to require a person outside the jurisdiction to travel to the jurisdiction. The second was the power to require production of documents, which was less onerous and did not require a person to travel, so could be used against a person outside the jurisdiction.
- In Wallace v Wallace  EWHC 2503 (Ch), the deputy judge favoured the analysis in Omni, not MF Global. He treated the power to examine under s.236 as akin to the court’s subpoena power, which has territorial limits. However, the power for production of documents was less invasive. Any concern about the making of such an order against a foreign person could be dealt with at the discretionary stage, not the jurisdiction stage, by consideration of the respondent’s connection with England and Wales.
The Chancellor (Sir Geoffrey Vos) held that he was required by precedent to follow Tucker and hold that s.236 did not permit an order to be made for production of documents by a person outside the jurisdiction. Section 236 was closer in its drafting to the bankruptcy power considered in Tucker, not the public examination power considered in Seagull, and in fact s.237(3) was re-enacted from s.25(6) of the Bankruptcy Act 1914, which was considered in Tucker.
However, the Chancellor made clear that he was not determining that Tucker was correctly decided, only that it was binding. In the absence of binding authority, the Chancellor agreed with David Richards J in MF Global that there was much to be said for s.236 having extra-territorial effect. The issue then arose whether extra-territorial effect could be obtained via the Insolvency Regulation, which provides that, within the EU, English law will (subject to certain limited exceptions) be applied to insolvency proceedings opened in England in respect of a company which has its centre of main interests in England. Referring to the jurisprudence of the European Court of Justice, the Chancellor held that the Insolvency Regulation could give international effect to otherwise purely domestic insolvency laws. The liquidators’ application under s.236 derived directly from the English liquidation and involved the exercise of a right under an insolvency law. An application for production of documents formed an integral part of the insolvency process. The Insolvency Regulation conferred extra-territorial jurisdiction on the English court to make orders against EU residents under s.236.
Having found that there was jurisdiction to make an order, the Chancellor considered that he should exercise his discretion to make an order. He highlighted the need for the court to balance the reasonable requirements of an insolvency officeholder to carry out his task with the need to avoid making an order which is wholly unreasonable, unnecessary or oppressive to the respondent.
Here, the liquidators’ needed to obtain documents in order to carry out their statutory function. Without an order, the liquidators may not be able to ascertain how Zengarini had come to be using the company’s trademarks without paying to do so. Though Zengarini was based in Italy and the dispute had its centre of gravity in Italy, that did not undermine the extent to which the English court had an interest in the making of an order – Akkurate’s centre of main interests was in England, hence its entry into liquidation in England.
However, the order sought by the liquidators was very broadly drawn and would require Zengarini to undertake a burdensome search which may go beyond what the liquidators truly needed to be undertaken. Accordingly, the Chancellor made an order in a narrower form than had been sought by the liquidators.