MacRae v Fisher

When exercising the power under Insolvency Act 1986, s.236, the court must balance the administrator’s or liquidator’s reasonable requirements against the need to avoid an order that is unnecessary, unreasonable or oppressive.

The discretion is not governed by hard and fast rules. The court may consider fairness to persons involved in related litigation, including defendants whose ordinary litigation processes might otherwise be circumvented. A liquidator’s purpose of advancing existing litigation does not, by itself, make an order unfair or oppressive.

The joint official liquidators of Primeo Fund applied for orders under s.236 of the Insolvency Act 1986 against KPMG LLP and David Yim. They sought identified documents from KPMG and answers to a questionnaire from Mr Yim concerning information allegedly given to HSBC in connection with reports obtained for the benefit of defendants in related Cayman proceedings.

The respondents resisted the application principally on the basis that the powers should not be used to obtain material for litigation which the liquidators could not otherwise obtain, or to circumvent the ordinary processes of that litigation. The issue was whether the statutory discretion should be exercised in the circumstances.

1. Application granted. There was no dispute that the court had jurisdiction to make the orders.
2. The governing principle was the balancing approach stated by Lord Slynn in British & Commonwealth Plc (Nos. 1 and 2) [1993] AC 426. The liquidators had to show that they reasonably required the information to perform their functions, and the court had to avoid imposing an unnecessary, unreasonable or oppressive burden.
3. The liquidators reasonably required the documents and information to carry out their functions, including pursuing claims already before the Cayman court.
4. The primary focus when assessing oppression was on KPMG and Mr Yim as respondents. Disclosure of the limited, identified documents was not oppressive to KPMG, particularly as the applicants would pay the associated costs. Requiring Mr Yim to answer a relatively short questionnaire might inconvenience him and cause work, but was not oppressive.
5. Following Morris v Director of the Serious Fraud Office [1993] Ch 372, the interests of other parties could be taken into account. Fairness might require consideration of defendants in related litigation, and in some cases use of s.236 to examine defendants or their witnesses could circumvent ordinary litigation processes.
6. That consideration did not create a hard and fast rule preventing a liquidator acting as a litigant from using s.236 to obtain material otherwise unavailable. The discretion was not fettered by rules derived from different facts. Here the information concerned matters put in issue in the Cayman proceedings and was potentially relevant to the alleged duties of the Cayman defendants. The balance favoured granting both limbs of the application.
7. The respondents were ordered to pay the applicants’ costs. The contested issue was one of principle on which the respondents had lost.