Official Receiver v Wadge Rapps & Hunt (a firm) & Anor

The House of Lords held that the powers in section 236 of the Insolvency Act 1986 (to summon persons and to require affidavits and production of documents) may lawfully be exercised by an office-holder, including the official receiver, for the purpose of obtaining evidence for use in disqualification proceedings under section 6 of the Company Directors Disqualification Act 1986. The court read sections 236 and 234(1) of the Insolvency Act together with sections 7(3) and 7(4) of the Disqualification Act and concluded that an office-holder's statutory functions include investigation and reporting to the Secretary of State and that these investigative functions are not confined to recovering and realising company assets.

The decision relies on a purposive construction: the statutory scheme taken as a whole, the inclusion of the official receiver in the definition of "office-holder", and the public interest in effective investigation of director misconduct. The House rejected the narrower view taken by the Court of Appeal that section 236 powers are limited to purposes incidental to asset recovery.

The appellant was the Official Receiver acting in relation to Pantmaenog Timber Co Ltd, a company compulsorily wound up in 1999. The Official Receiver reported suspected unfitness of two former directors to the Secretary of State under section 7(3) of the Company Directors Disqualification Act 1986; the Secretary of State directed the Official Receiver to bring mandatory disqualification proceedings under section 6. The Official Receiver applied under section 236 of the Insolvency Act 1986 for orders requiring third-party lawyers and accountants to produce documents; his stated sole purpose was to obtain evidence for the disqualification proceedings.

The applications were made in the winding up proceedings. A district judge granted production orders, but on appeal Judge Weeks QC discharged them and the Court of Appeal (Chadwick LJ) dismissed the Official Receiver's appeal, holding that section 236 powers were limited to assisting the liquidator in carrying out functions in the winding up (principally asset recovery) and could not be used solely for gathering evidence for disqualification proceedings.

The House of Lords allowed the Official Receiver's appeal. The Lords framed the issues as: (i) whether section 236 can be used solely or principally to obtain evidence for mandatory disqualification proceedings under section 6 of the Disqualification Act; and (ii) how the powers and duties of office-holders under the Insolvency Act and the Disqualification Act should be read together. The House considered the statutory definitions (including the extended meaning of "office-holder" in section 234(1)), the reporting duties in section 7(3) and the powers in section 7(4) of the Disqualification Act, and the wide wording of section 236(3).

The court reasoned that office-holders' functions are not confined to asset realisation but include investigation and reporting in the public interest; section 236 imposes no express limitation confining its use to asset recovery; the inclusion of the official receiver whether or not he is liquidator demonstrates Parliament intended investigative uses; and reading the statutes together supports a generous, purposive construction to enable effective disqualification proceedings. The House noted the court retains a discretion and must guard against oppressive use of section 236; applications made solely for disqualification purposes will be rare and subject to close scrutiny.

Appeal allowed. The House of Lords held that section 236 of the Insolvency Act 1986 may be lawfully used by an office-holder, including the official receiver, to obtain evidence for use in mandatory disqualification proceedings under section 6 of the Company Directors Disqualification Act 1986. The court's rationale was that the statutory scheme (including sections 236 and 234(1) of the Insolvency Act and sections 7(3) and 7(4) of the Disqualification Act) gives office-holders investigatory and reporting functions in the public interest which are not confined to asset recovery, and the wording of section 236 is sufficiently wide to permit such use subject to the court's supervisory discretion against oppressive applications.

The order under section 236 was made in the Bristol County Court and then discharged on appeal by Judge Weeks QC. The Official Receiver appealed to the Court of Appeal; Chadwick LJ gave judgment dismissing the appeal (reported as [2001] EWCA Civ 1227; [2002] Ch 239). The matter was then brought to the House of Lords, which allowed the appeal ([2003] UKHL 49). Meanwhile the disqualification proceedings were transferred to the High Court, tried before Neuberger J and resulted in disqualification orders (28 January 2003); that outcome was unaffected by this appeal.