Case comment: Wallace v Wallace  EWHC 2503 (Ch) (25 September 2019) (Adam Johnson QC sitting as a Judge of the High Court)
The above case provides further clarity on the jurisdictional reach of section 236 Insolvency Act 1986 (and the bankruptcy equivalent section 366 Insolvency Act 1986).
Insolvency Act 1986 (“IA 1986”) and Insolvency (England & Wales) Rules 2016 (“IR 2016”)
The IA 1986 and IR 2016 give insolvency office-holders in certain situations the power to obtain property (including cash, book and records and documents) of the insolvent company or bankrupt from any person in possession of the same (section 234 IA 1986). The IA 1986 imposes a duty on certain individuals and entities to co-operate with the office-holder and imposes sanctions in the event that they fail to do so (section 235 IA 1986). In addition, pursuant to section 236 IA 1986, the office-holder may make an application to court seeking the court to summon to appear before it:
- any officer of the company;
- any person known or suspected to have in his possession any property of the company or supposed to be indebted to the company, or;
- any person whom the court thinks capable of giving information concerning the promotion, formation, business, dealings, affairs or property of the company.
Any such aforementioned persons may be required to do any one or more of the following: (1) appear before the court for examination under oath (section 236(2) IA 1986); and/or (2) deliver up documents in their possession and/or under their control (section 236(3) IA 1986); and/or (3) provide a sworn witness statement providing an account of their dealings with the insolvent company (section 236(3) IA 1986).
Section 236 IA 1986
The purpose of the application under section 236 IA 1986 is to allow the office-holder to obtain a full account of the matters giving rise to the insolvency event and/or the affairs and property of the insolvent and it should not be used oppressively or unfairly. The court has discretion whether to make the order sought.
Does section 236 IA 1986 have extra-territorial effect?
In Re MF Global UK Ltd  EWHC 2319 (Ch) the High Court held that it did not have jurisdiction to make an order under section 236 of the IA 1986 against persons not in the jurisdiction.
In Official Receiver v Norriss  EWHC 2697 the High Court held that the power under section 236(2) does not have extra-territorial effect, however, it could make an order for the production of documents and information against a person abroad under section 236(3).
Wallace v Wallace  EWHC 2503 (Ch)
In this case the liquidators of an English company made an application under section 236 IA 1986 against a former book-keeper of the insolvent company, resident in Ireland, to produce documents of the company in his control or possession.
The High Court followed Norriss, noting that:
- The power to require the production of documents under section 236(3) should be regarded as a standalone power separate from the power to summon a person out of the jurisdiction under section 236(2): section 236(3) was less invasive than section 236(2).
- The court should take account of the international dimension in its assessment and be wary of making orders seeking to regulate the conduct of third parties abroad in respect of matters having no real connection with the jurisdiction or which involved excessive or exorbitant exercise of jurisdiction.
The court held that the liquidator of an English company was entitled to an order against a former book-keeper of the insolvent company, resident in Ireland, to produce documents of the company in his control or possession.
In this case the book-keeper held critical information and could not reasonably complain about having to supply information. As book-keeper, he was an important part of the company’s operations and therefore he was sufficiently connected with the jurisdiction. The company’s centre of main interests was in the UK and the order of the court would be recognised and enforced in Ireland under the Insolvency Regulation 2000. The court therefore had a legitimate interest in regulating the book-keeper’s conduct abroad and in requiring him to make documents and information available to the liquidator.
It is apparent that in reaching the above-mentioned decision the court has been careful to consider:
- whether, in respect of the relief sought against him, the respondent is sufficiently connected with the jurisdiction for it to be just and proper to make an order despite the foreign element; and
- jurisdiction and authority of the court of the company’s centre of main interest and whether any order made from that court is expressly recognised. We query that for cases that do not involve the EC Regulation, there may be further questions to address in respect of extra-territorial effect of section 236 IA 1986.
The decision is a useful addition to case law on the extra-territorial application of section 236 (and the bankruptcy equivalent in section 366). It is now clearer than before that jurisdictional reach under section 236(3) must be considered separately from the power to summon a person to appear before the court under section 235(2). However, it seems that whether you are an office-holder or the potential subject of proceedings under section 236 IA 1986, careful consideration must be given to (1) and (2) above.
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