The court allowed material obtained by a liquidator through the court's compulsory powers under section 236 of the Insolvency Act 1986 ("IA 1986"), to be provided to a litigation funder, and for that funder to use that material in pursuing assigned causes of action against the company's directors.
Background and facts
The liquidator suspected that company funds had been diverted to the personal accounts of the defendant company directors, Mr and Mrs Melhuish. Seeking to recover these assets for the creditors, the liquidator obtained bank statements and documents from a third party by applying to court pursuant to the powers of compulsion provided for by s.236, IA 1986.
By an assignment dated 20 May 2022, the liquidator assigned all claims that he was capable of pursuing against the Respondents to a litigation funder, Asertis. Subsequently, objections arose regarding the use of personal bank statements in litigation by the assignee, Asertis, particularly on grounds of confidentiality.
Issues before the court
- Whether the liquidator was entitled to provide documents obtained through the court's compulsory powers under s.236, IA 1986 to an assignee;
- Whether the assignee could rely on these s.236 documents in pursuing the assigned cause of action, and whether permission of the court was required.
Court's reasoning
Chief ICC Judge Briggs explained that documents obtained under s.236 are subject to an implied duty of confidentiality, which is "qualified" rather than absolute. The court reviewed authorities confirming that confidentiality should not prevent the performance of a liquidator's statutory duties, including investigation of the company's affairs and pursuit of recoveries for the benefit of creditors.
The judgment noted that the Insolvency Act 1986 (as amended by the Small Business, Enterprise and Employment Act 2015) permits assignment of certain causes of action (s.246ZD) to maximize returns to creditors. The liquidator, to achieve the best realisation of assets, may need to share relevant information with a prospective or actual assignee. The court found a strong public interest in enabling assigned litigation to proceed effectively, so long as appropriate safeguards (e.g., redaction of irrelevant private information) were observed.
Decision
The court held that the liquidator validly disclosed the s.236 documents to Asertis and that Asertis was entitled to use these documents in the assigned litigation. The material should be made available to the assignee for the purpose of satisfying the burden of proof at trial. The office-holder's ability to obtain the best price for the causes of action would be impaired if they could not share material evidence with prospective assignees.
The implication is that permission should generally be sought when using confidential information obtained via statutory compulsion, but the court confirmed that such permission would typically be granted if it furthers the estate's recovery and privacy interests are protected through redaction.
Recommended steps for office holders
- Before disclosing any s.236 materials, office holders should confirm that the proposed use of the information (e.g., assignment of a claim and subsequent litigation) genuinely advances the interests of the liquidation estate and its creditors.
- Where respondents or former officers object to the use of compelled documents, or if there is uncertainty about confidentiality, office holders should seek the court's directions. In Asertis, the liquidator asked the court to confirm that disclosure to the assignee and subsequent reliance on those documents was permitted.
- Preserve confidentiality and protect data:
- remove purely personal or irrelevant information from bank statements;
- enter NDAs with prospective assignees or litigation funders to protect third-party personal data and prevent wider dissemination;
- ensure compliance with any data protection or privacy legislation that may govern the specific information disclosed.
- Keep records of:
- the commercial rationale for assigning the claim;
- the specific documents disclosed;
- the respondents' stance on confidentiality.
- Office holders should weigh carefully whether partial disclosure, under proper safeguards, might yield a better return for creditors, and time any application for permission so as not to disrupt upcoming hearings or trials.
Conclusion
The decision underlines the public interest in maximizing returns to creditors and preventing the misuse of corporate assets, balancing such interest against the need to maintain confidentiality of compelled disclosures.
