ICC Judge Burton’s judgment in Dale & Ors v BDO LLP (Re NMCN PLC and NMCN Sustainable Solutions Ltd) [2025] EWHC 446 (Ch) follows an administrators’ application under ss 235 and 236 Insolvency Act 1986 for the former company auditors, BDO LLP, to deliver up audit files for 2018 and 2019 to enable the administrators to investigate whether BDO had breached duties owed to the companies. The application was resisted. The points of contention were:
(1) whether, as the companies’ auditors, BDO were an “officer” for the purposes of s 235;
(2) whether the test in British and Commonwealth Holdings plc v Spicer & Oppenheim should be approached in one or two stages, requiring the office-holders first to establish that they reasonably required the information or documents sought, and then, if that was established, how the court should balance that requirement against any potential oppression that might be caused to the respondent; and
(3) the extent to which those principles should apply following the introduction of the Professional Negligence Pre-Action Protocol.
After looking at the statutory provisions themselves, the judge examined the case law and the principles derived from it that she thought relevant to the issues she had to decide. Among the points she made in doing so were the following:
(1) The powers under ss 235 and 236 are conferred to enable an insolvency office-holder to discover the true facts concerning the affairs of an insolvent estate so as to enable them, as quickly, effectively and with as little expense as possible, to complete their duties: Pickard v Fim Advisers LLP and Re Rolls Razor Ltd.
(2) The power under s 236 is not limited to an order, the purpose of which is to reconstitute the company’s knowledge: British and Commonwealth Holdings plc.
(3) However, the power is an extraordinary power, and the discretion to use it must be exercised after a careful balancing of the factors involved: on the one hand the reasonable requirements of the office-holder to carry out his task; on the other the need to avoid making an order that is unreasonable, unnecessary or “oppressive” to the respondent. A proper case is one where the office-holder reasonably requires the documents to carry out his functions, and their production does not impose an unnecessary and unreasonable burden on the person required to produce them.
(4) An application is not necessarily unreasonable because it is inconvenient for the respondent or causes him a lot of work or may make him vulnerable to future claims, or is addressed to him as a person who is not an officer or employee of or a contractor with the company, although all these, with many others, may be relevant factors to take into account.
(5) Sasea Finance Limited v KPMG suggests a two-stage test: first, establishing a reasonable requirement for information (a matter on which the onus is on the office-holders, but in relation to which their views will normally be given a good deal of weight); then the court’s carrying out the 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. (The judge noted, however, the absence of other authority in support of that proposition.)
(6) The circumstances relevant to an application under s 236 may vary infinitely: the statute does not seek to fetter the court’s discretion. The judge said:
“I accept therefore, that when considering whether to make an order under section 235 (which expressly refers to the office-holder’s reasonable requirement) and section 236 (where the common law similarly imposes a ‘reasonable requirement’ test), the court’s discretion is at large and it remains open to me to consider the burden and any potential oppression that may fall upon BDO when determining the reasonableness of the Applicants’ asserted requirement.”
(7) Sasea Finance provided support for the proposition that a company’s auditors were “probably officers of the company within the meaning of s 236(2)(a).”
(8) The case for making an order against persons with a statutory duty to cooperate with office-holders under s 235 was regarded in Re Cloverbay as being stronger than when considering an application against a third party.
(9) In Re XL Communications Group Plc a district judge’s decision to refuse to make an order against BDO pursuant to s 236 was upheld on appeal, but in that case more than six years had passed since the company had gone into liquidation, and a newly-appointed, replacement liquidator was seeking a long list of documents said to be required to investigate the company’s financial position both before and after it was floated on the Alternative Investment Market.
Taking into account “the unique nature of the information” likely to be held on the BDO audit files, which the judge described at some length, as well as the likelihood of those files providing, “in a self-contained arena all of the information provided by the Company to enable the audits to be performed,” the judge concluded:
“[T]his is, in my judgment, an appropriate case to exercise my discretion in favour of making an order that BDO deliver up the Audit Files. I am satisfied that the Applicants reasonably require the Audit Files. The potential oppression caused to BDO in providing them, knowing that their disclosure may lead to litigation being commenced against them and that a privilege review must first be conducted in respect of the 2018 Audit File, does not dissuade me from concluding that the Applicants’ requirement to see the files is reasonable, nor, when weighed in the balance, to decline to make an order in the terms sought.”
She was not persuaded that the court’s discretion was limited as a result of the introduction of the Professional Negligence Pre-Action Protocol. There was no authority to that effect.
The application succeeded.
It will be apparent that in this case the scope of what the office-holders were seeking was well defined, if potentially significant in amount. Contrast this with the position in Webb & Anor v Eversholt Rail Ltd & Anor (Re Eversholt Rail (365) Ltd [2024] EWHC 2217 (Ch), in which the same judge rejected an application of a similar kind on the basis that it was too wide, and a reasonable requirement for the documents sought had not been made out.