How to survive a s.236 Private Examination

Specialist bankruptcy lawyer Stephen Chinnery discusses how to deal with a Private Examination –

Following the insolvency of a company a liquidator has a wide range of powers to investigate the conduct of former directors.

Section 235 of the Insolvency Act 1986 requires that former directors of a company have obligations to co-operate with a liquidator. This means that they have to provide information, produce documents, and attend meetings with the liquidator as so required.

The liquidator also has a much more powerful weapon in its arsenal pursuant to section 236 of the Insolvency Act 1986. This is a much more formal means of obtaining the cooperation of a director or former director of the company to assist in the liquidators enquiries. It is referred to as a Private Examination procedure.

Section 236 provides that the court may on the application of the liquidator summon before it any officer of the company or any person known or suspected to have in his possession any property of the company or who is or is supposed to be indebted to the company or any person whom the court think is capable of giving information concerning the promotion, formation or business dealings and affairs and property of the company.

It normally happens that an application under this section is sought where the informal approaches under section 235 have been unsuccessful.

A person so ordered may be required to submit an affidavit to account for his dealings with the company and or produce any books all records in his custody or control relating to the company.

Any person that fails to attend a court appointment when so required may be liable to arrest.

So the question arises: if I am faced with an aggressive liquidator seeking to use their powers pursuant to section 235 and section 236 what do I do?

The first point to consider is that it is an inappropriate use of section 235 and section 236 to demand attendances and invoke a private examination where financial proceedings (intended to be brought by the liquidator against the former director) are the real reason for the use of the procedures. Therefore in dealing with correspondence from the liquidator it is appropriate to attempt to ascertain whether this is the real motive of the liquidator. The Court will not make an order where the request is opportunistic – see the case of Re RBG Resources PLC [2002].

In this way an aggressive approach can be taken with the liquidator in order to ascertain those motives.

For expert insolvency law advice in relation to dealing with a liquidators power pursuant to section 236 of the insolvency act 1986 please email or telephone 07460 005 769.