Does the assignment by an office-holder under s 246ZD Insolvency Act 1986 carry with it the right to make use of documents obtained by the office-holder under s 236 in pursuing the assigned cause of action? Asertis Ltd & Anor v Melhuish & Ors [2024] EWHC 2819 (Ch) deals with the question.
Solstice Limited did insurance surveying and repairs for insurance companies. Mr and Mrs Melhuish and Mrs Bowman, their daughter, were all directors of the company at some time.
On 19 March 2021 an order was made under s 236 Insolvency Act in favour of the company’s liquidator for the production by the Secretary of State/Insolvency Service and Aviva Insurance Limited of various documents, including bank statements. The Secretary of State had been in possession of documents relating to accounts held at Barclays Bank and Santander, having obtained them under a court production order made in the course of a criminal investigation; Aviva, a customer of the company, was believed to have information about the destination of payments made to the company.
In January 2023 Asertis, as assignee, issued proceedings against the three former directors. As a result of failure to comply with court orders both Mr and Mrs Melhuish were debarred from defending.
At a hearing of 2 September 2024 a point was taken before ICC Judge Burton about Asertis’s use in the proceedings of personal bank statements obtained under the order of 19 March 2021. Judge Burton directed Asertis not to rely on them without first making an application to court to determine its entitlement to do so. Asertis made that application, which resulted in a hearing before Chief ICC Judge Briggs.
It was Mrs Melhuish who advanced the objection to the use of her bank statements, saying that she had been asked to provide them to the liquidator but had refused, and she had never given her consent to their use in proceedings. She had written to the liquidator in September 2024 asking how the statements had been used, and to Aviva and the Insolvency Service. Mrs Bowman neither supported nor resisted the application. Mr Melhuish did not appear. The liquidator gave evidence that the assigned claim was for relief relating to money that had gone through non-company bank accounts. The claim depended on use of the bank statements, without which it might not succeed.
Judge Briggs drew a number of propositions from the case law:
(1) Where an office-holder who obtains documents using powers of compulsion, he/she is subject to an implied duty of confidentiality: Hamilton v Navided (Re Arrows Ltd No 4); Marcel v Commissioner of Police of the Metropolis. In R v Brady information obtained by the official receiver under compulsion had been provided to the Inland Revenue to assist in a criminal investigation. Tuckey LJ explained in that case that the material was confidential not because the information provided was private, but because it had been obtained by compulsion in circumstances in which the rule against self-incrimination could not be invoked.
(2) In Soden v Burns Robert Walker J described the duty of confidence as a qualified duty, the qualification being, as explained by Lord Browne-Wilkinson in Re Arrows Limited, that “The Liquidator cannot be under any duty of confidence which will prevent the performance of [his/her] statutory duties.”
(3) In Re Esal (Commodities) Ltd (No 2), in which the plaintiffs had issued an application for permission to use documents in litigation, that had been obtained under the equivalent of s 236 IA 1986, Millett J said: “[T]o make use of material obtained by the use or under the threat of sec. 268 proceedings…save in exceptional circumstances, leave should be granted only if the use proposed to be made is within the purpose of the statutory procedure, that is to say, that the use proposed to be made of the material is to assist the beneficial winding-up of the company.”
Judge Briggs went on to consider the background to and policy informing the passing of s 246ZD of IA 1986, the result of which was now to give an office-holder the freedom to choose whether to pursue a cause of action (whether in court or out of court), sell the cause of action, or not pursue the action.
The judge accepted that commercial reality meant that any purchaser of a cause of action would require a liquidator to provide all the documents necessary to substantiate the underlying claim. “This case,” he noted “is particularly reliant on the documents obtained under section 236 IA 1986. The discussion in Parliament in 2014 demonstrates it was alive to the issue of confidence and chose not to include an override provision.” The consequence, in his view, was that the public interest meant ensuring the free flow of information between liquidator and assignee, particularly where the insolvent estate retained an interest in the outcome of the proceedings. He rejected, however, a submission that the liquidator and any assignee should be treated as if they were on an equal footing:
“[T]he assignee does not step into the shoes of the assignor for all purposes and once the information or documents are cloaked in confidentiality they remain confidential unless there is a release from the person who benefits from the protection.”
Rather, he held, although confidentiality should be preserved where it needed to be retained, practical steps could be taken to preserve it by minimising any risk to it resulting from use of documents containing confidential information: “Such steps,” he said, “need not be set down in stone as each case will depend on [its] own facts. The likely starting point is consent, and in the absence of consent a request to admit facts.” In the case before him he decided that the material obtained from the Insolvency Service and Aviva should be made available to the assignee for the purpose of satisfying the burden of proof at trial. That, in his view, was consistent with the intention of Parliament to provide an office-holder with the ability to sell causes of action for the benefit of the insolvent estate. But the bank statements should be redacted to conceal personal information and disclose only the fact of the relevant deposits into the account.
On the need for permission he said this:
“[I]t is for the office-holder to decide whether to seek permission to provide confidential information to a prospective assignee or assignee. Similarly the assignee must decide if the permission of the court is required to use any confidential information. Ordinarily the office-holder and assignee will agree if and when an application for permission is to be made. In my judgment permission will be the usual course but each case will be fact sensitive. The Liquidator [was] right to seek permission in this case.”